Boat Ltd. 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 consists of a group of insignificant components lumped together with an average cost and useful life.

Required:

1. Assuming straight line is the appropriatemethod 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.

Prepare the journal entry that would be recorded when component B is replaced.

Transcribed Image Text:

Component Quantity Orlginal Unit Cost Residual Value Useful Life A $120,000 $5,000 12 years B 1 40,000 3 years 8,000 500 6 years 10 2,000 2 years