Question

On September 1, a 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 O $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation. $4,500 debit to Depreciation Expense and a $4,500 credit to Accumulated Depreciation. O $1,500 debit to Accumulated Depreciation and a $1,500 credit to Depreciation Expense. $4,500 debit to Accumulated Depreciation and a $4,500 credit to Depreciation Expense. O $1,500 debit to Depreciation Expense and a $1,500 credit to Cash.

Answer 1

Depreciation expense under Straight line method = (Cost - Salvage value) / Estimated useful life

= ($25,000 - $2,500) / 5

= $4,500

Depreciation expense for Year 1 = $4,500 * 4 / 12 = $1,500

JOURNAL ENTRY

December 31	Depreciation expense	$1,500
	Accumulated depreciation		$1,500

The answer is $1,500 debit to depreciation expense and a $1,500 credit to accumulated depreciation.