Log out Go to App
Go to App

Learning Materials

Features

Discover

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

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.

Presented below is information related to equipment owned by Pujols Company at December 31, 2017.

Cost (residual value \(0)

\)9,000,000

Accumulated depreciation to date

1,000,000

Value-in-use

5,500,000

Fair value less cost of disposal

4,400,000

Assume that Pujols will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 8 years. Pujols uses straight-line depreciation.

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 recoverable amount of the equipment at December 31, 2018, is $6,050,000. Prepare the journal entry (if any) necessary to record this increase.

(Depreciation Computation—Replacement, Nonmonetary Exchange) George Zidek Corporation bought a machine on June 1, 2015, for \(31,000, f.o.b. the place of manufacture. Freight to the point where it was set up was \)200, and \(500 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvage value of \)2,500. On June 1, 2016, an essential part of the machine is replaced, at a cost of \(1,980, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy.

On June 1, 2019, the company buys a new machine of greater capacity for \)35,000, delivered, trading in the old machine which has a fair value and trade-in allowance of \(20,000. To prepare the old machine for removal from the plant cost \)75, and expenditures to install the new one were \(1,500. It is estimated that the new machine has a useful life of 10 years, with a salvage value of \)4,000 at the end of that time. (The exchange has commercial substance.)

Instructions

Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2019. (Round to the nearest dollar.)

Dickinson Inc. owns the following assets.

Asset

Cost

Salvage

Estimated useful life

A

\(70,000

\)7,000

10 years

B

50,000

5,000

5 years

C

82,000

4,000

12 years

Compute the composite depreciation rate and the composite life of Dickinson’s assets.

Explain how gains or losses on impaired assets should be reported in income.
See all solutions

Recommended explanations on Business Studies Textbooks

Introduction to Business

Read Explanation

Managerial Economics

Read Explanation

Corporate Finance

Read Explanation

Strategic Analysis

Read Explanation

Influences On Business

Read Explanation

Organizational Behavior

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free