Question

On September 1, Crestview Company purchased equipment for $25,000. The equipment's estimated salvage value is $2,500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a:

A) $1,500 debit to Depreciation Expense and a $1,500 credit to Equipment.
B) $4,500 debit to Depreciation Expense and a $4,500 credit to Equipment.
C) $4,500 debit to Depreciation Expense and a $4,500 credit to Accumulated Depreciation.
D) $4,500 debit to Depreciation Expense and a $4,500 credit to Cash.
E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

Answer 1

Answer:

E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

Explanation:

Depreciation for one year = ( Cost of Equipment - Estimated Salvage value ) / Useful life

Depreciation for one year = ( $25,000 - $2,500 ) / 5

Depreciation for one year = $4,500 per year

Depreciation charge for the year on December 31 = $4,500 x ( 4 /12 ) = $1,500

$1,500 will be charged as expense and it will also be credited to the accumulated depreciation account.