Question

On January 1, 2018, the company purchased equipment that cost $10,000. The equipment is expected to be worth about (or has a salvage value of) $1,000 at the end of its useful life in five years. The company uses straight-line depreciation. It has not recorded any adjustments relating to this equipment during 2018. Complete the necessary journal entry.

Answer 1

Answer:

The journal entries are as follows:

(i) On January 1, 2018

Equipment A/c Dr. $10,000

        To cash A/c                  $10,000

(To record the purchase of equipment)

(ii) On December 31st,

Depreciation expense A/c Dr. $1,800

              To Accumulated depreciation - equipment   $1,800

(To record the accumulated depreciation on equipment for the year 2018 under the straight line method)

Workings:

Depreciation:

= (Cost of the equipment - Salvage value) ÷ Useful life

= ($10,000 - $1,000) ÷ 5

= $9,000 ÷ 5

= $1,800