The company has a major asset that has just been purchased and has been segregated into the following significant components made up of spare parts and major inspections. Component D is all of the insignificant components grouped together with an average cost and useful life.

Required:
1. Assuming straight- line is the appropriate method of depreciation, what is the amount of depreciation in year one?
2. What would be the impact if component B was a major spare part that was replaced at the end of the second year instead of the third year as originally predicted? The new major spare part has a value of $ 50,000. Identify the specific journal entry that would be required when the major spare part wasreplaced.

Transcribed Image Text:

Original Useful Life 12 years 3 years 6 years 2 years Residual Component Value Quantity 2 5 Unit Cost $120,000 40,000 8,000 2,000 $5,000 0 500 0 10