Purpose: This exercise will enable you to practice working with the composite method for computing depreciation.
Presented below is information related to the Lori Demro Corporation (all assets are acquired at the beginning of Year 1):
|
Asset
|
Cost
|
Estimated Scrap
|
Estimated Life (in years)
|
|
A
|
$60,750
|
$8,250
|
10
|
|
B
|
50,400
|
7,200
|
9
|
|
C
|
54,000
|
4,800
|
8
|
|
D
|
28,500
|
2,250
|
7
|
|
E
|
35,250
|
3,750
|
6
|
Instructions
(a) Compute the rate of depreciation per year to be applied to the plant assets under the composite method.
(b) Compute the composite life.
(c) Prepare the adjusting entry necessary at the end of the year to record depreciation for Year 1.
(d) Prepare the entry at the end of Year 6 to record the sale of fixed asset D for cash of $7,500. It was used for 6 years, and depreciation was recorded under the composite method.