Question

3. Andrew Autobody purchased a car jack for $15,000 on July 1. The estimated useful life of the car jack is 5 years. If the financial statements are prepared on December 31, Andrew should make the following adjusting journal entry: (a) debit Depreciation Expense, $1,500, credit Accumulated Depreciation, $1,500. (b) debit Depreciation Expense, $15,000, credit Accumulated Depreciation, $15,000. (c) debit Depreciation Expense, $3,000, credit Accumulated Depreciation, $3,000. (d) debit Machinery, $1,500, credit Accumulated Depreciation, $1,500.

Please choose the correct answer and explain it.

Answer 1

The adjusting journal entry to record the depreciation expense for the first year ending December 31

Date	Accounts Tittles and Explanations	Debit ($)	Credit ($)
Dec 31	Depreciation Expenses A/c	1,500
	To Accumulated Depreciation Expense A/c		1,500
	[Being the Journal entry passed to record the depreciation expense for the first year ending December 31]

Depreciation Expense using the Straight-Line Method = [(Cost of asset - Residual Value) / Useful Life] x [6 Months / 12 Months]

= [($15,000 - $0) / 5 Years] x [6 Months / 12 Months]

= [$15,000 / 5 Years] x [6 Months / 12 Months]

= $3,000 x [6 Months / 12 Months]

= $1,500

NOTE

The Fraction of [6 Months / 12 Months] shall be taken, since the Car Jack was purchased on July 1, and therefore, Only the proportionate Depreciation will be taken [From July 1 to December 31]