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Chapter 11: Q9E (page 586)

(Composite Depreciation) Presented below is information related to LeBron James Manufacturing Corporation.

Asset

Cost

Estimated Salvage

Estimated Life (in years)

A

\(40,500

\)5,500

10

B

33,600

4,800

9

C

36,000

3,600

9

D

19,000

1,500

7

E

23,500

2,500

6

Instructions

  1. Compute the rate of depreciation per year to be applied to the plant assets under the composite method.
  2. Prepare the adjusting entry necessary at the end of the year to record depreciation for the year.
  3. Prepare the entry to record the sale of asset D for cash of $4,800. It was used for 6 years, and depreciation was entered under the composite method.

Short Answer

Expert verified

Answer

  1. The rate of depreciation is 10.7%
  2. Accumulated depreciation = $16,300
  3. Accumulated depreciation = $14,200

Step by step solution

01

Meaning of Composite Depreciation

Composite depreciation combines a group of depreciating assets into a single entity rather than treating each item separately. In simple words, it is the application of straight-line depreciation to a portfolio. If an asset is sold, a debit is made to cash and a credit is made to fixed assets.

02

(a) Computing the rate of depreciation per year

Asset

Cost

Estimated Salvage

Depreciable Cost

Estimated Life

Depreciation per Year

A

$40,500

$5,500

$35,000

10

$3,500

B

33,600

4,800

28,800

9

3,200

C

36,000

3,600

32,400

9

3,600

D

19,000

1,500

17,500

7

2,500

E

23,500

2,500

21,000

6

3,500

$152,600

$17,900

$134,700

$16,300

Calculation of composite life

Compositelife=DepreciablecostDepreciationperyear=$134,700$16,300=8.26years

Calculation of composite rate

Compositerate=DepreciationperyearCost=$16,300$152,600=10.7%


03

(b) Preparing journal entry

Date

Particular

Debit ($)

Credit ($)

Depreciation Expense

16,300

Accumulated Depreciation

Plant Assets

16,300

04

(c) Preparing journal entry

Date

Particular

Debit ($)

Credit ($)

Cash

4,800

Accumulated Depreciation

Plant Assets

14,200

Plant Assets

19,000

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Most popular questions from this chapter

(Depreciation鈥擟hange in Estimate) Machinery purchased for \(60,000 by Tom Brady Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of \)4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2018, it is determined that the total estimated life should be 10 years with a salvage value of $4,500 at the end of that time. Assume straight-line depreciation.

Instructions

  1. Prepare the entry to correct the prior years鈥� depreciation, if necessary.
  2. Prepare the entry to record depreciation for 2018.

(Depreciation鈥擱eplacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of \(2,200,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value.

In January 2018, a new roof was installed at a cost of \)300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.

Instructions

  1. What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
  2. What entry should be made in 2018 to record the replacement of the roof?
  3. Prepare the entry in January 2018 to record the revision in the estimated life of the building if necessary.
  4. What amount of depreciation should be charged for the year 2018?

(Depreciation for Partial Periods鈥擲L, Act., SYD, and Declining-Balance) The cost of equipment purchased by Charleston, Inc., on June 1, 2017, is \(89,000. It is estimated that the machine will have a \)5,000 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is estimated at 525,000 units. During 2017, the machine was operated 6,000 hours and produced 55,000 units. During 2018, the machine was operated 5,500 hours and produced 48,000 units.

Instructions Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods.

  1. Straight-line.
  2. Units-of-output.
  3. Working hours.
  4. 厂耻尘-辞蹿-迟丑别-测别补谤蝉鈥�-诲颈驳颈迟蝉.
  5. Declining-balance (twice the straight-line rate).

Under what conditions is it appropriate for a business to use the composite method of depreciation for its plant assets? What are the advantages and disadvantages of this method?

Jurassic Company owns machinery that cost \(900,000 and has accumulated depreciation of \)380,000. The present value of expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value less cost of disposal of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.
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