Question

(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

Answer

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

Step-by-step solution

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.

(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

$\begin{array}{rcl}\mathrm{Composite}\mathrm{life}& =& \frac{\mathrm{Depreciable}\mathrm{cost}}{\mathrm{Depreciation}\mathrm{per}\mathrm{year}}\\ & =& \frac{\$134,700}{\$16,300}\\ & =& 8.26\mathrm{years}\end{array}$

Calculation of composite rate

$\begin{array}{rcl}Compositerate& =& \frac{Depreciationperyear}{Cost}\\ & =& \frac{\$16,300}{\$152,600}\\ & =& 10.7\%\\ & & \end{array}$

(b) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Depreciation Expense	16,300
	Accumulated Depreciation Plant Assets		16,300

(c) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Cash	4,800
	Accumulated Depreciation Plant Assets	14,200
	Plant Assets		19,000