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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

For what reasons are plant assets retired? Define inadequacy, supersession, and obsolescence.

Andrea Torbert purchased a computer for \(8,000 on July 1, 2017. She intends to depreciate it over 4 years using the double-declining-balance method. Salvage value is \)1,000. Compute depreciation for 2018.

(Depreciation Computations鈥擲YD, DDB鈥擯artial Periods) Judds Company purchased a new plant asset on April 1, 2017, at a cost of \(711,000. It was estimated to have a service life of 20 years and a salvage value of \)60,000. Judds鈥� accounting period is the calendar year.

Instructions

  1. Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years鈥�-digits method.
  2. Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance method.

(Impairment) Presented below is information related to equipment owned by Suarez Company at December 31, 2017.

Cost

\(9,000,000

Accumulated depreciation to date

1,000,000

Expected future net cash flows

7,000,000

Fair value

4,800,000

Assume that Suarez will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
  2. Prepare the journal entry to record depreciation expense for 2018.
  3. The fair value of the equipment at December 31, 2018, is \)5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

(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.
See all solutions

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