Highsmith Rental Company purchased an apartment building early in 2021. There are 25 apartments in the building and each is furnished with major kitchen appliances. The company has decided to use the group depreciation method for the appliances. The following data are available: Appliance Cost Residual Value Service Life (in Years) Stoves $ 21,000 $ 3,000 6 Refrigerators 16,000 4,000 5 Dishwashers 14,000 3,000 4 In 2024, two new refrigerators costing $3,000 were purchased for cash. In that same year, the old refrigerators, which originally cost $2,100, were sold for $500. Required: 1. Calculate the group depreciation rate, group life, and depreciation for 2021. 2. Prepare the journal entries to record the purchase of the new refrigerators and the sale of the old refrigerators.

1)

Appliances      Purchase    Residual      Useful          Annual

                        cost             value           life               depreciation

Stoves              $21,000      $3,000        6                 $3,000

Refrigerators   $16,000      $4,000        5                 $2,400

Dishwashers    $14,000      $3,000        4                 $2,750

Total                 $51,000     $10,000                           $8,150

group depreciation rate = $8,150 / $51,000  = 15.98%

group life = (6 + 5 + 4) / 3 = 5 years

depreciation 2021 = $8,150

2)

The journal entry to record the purchase of the new refrigerators:

Dr Refrigerators 3,000

    Cr Cash 3,000

The journal entry to record the sale of the old refrigerators:

Dr Cash 500

Dr Accumulated depreciation: Refrigerators 1,600

    Cr Refrigerators 2,100

    Cr Cash 6,000

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

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