On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

A. Debit Depreciation Expense, $9,000; credit Accumulated Depreciation, $9,000. B. Debit Depreciation Expense, $9,000; credit Equipment, $9,000. C. Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000. D. Debit Depreciation Expense, $18,000; credit Equipment, $18,000. E. Debit Depreciation Expense, $90,000; credit Accumulated Depreciation, $90,000.

Question

Business

Ruby Mayer

25 May, 19:19

On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

A. Debit Depreciation Expense, $9,000; credit Accumulated Depreciation, $9,000. B. Debit Depreciation Expense, $9,000; credit Equipment, $9,000. C. Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000. D. Debit Depreciation Expense, $18,000; credit Equipment, $18,000. E. Debit Depreciation Expense, $90,000; credit Accumulated Depreciation, $90,000.

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Answers (1)

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Liberty Little · Answer 1

Option C is correct

Explanation:

Using straight line depreciation method we can calculate the annual depreciation of the machinery, which can be calculated from the following formula:

Straight Line Depreciation = (Cost - Salvage Value) / Useful value

Straight Line Depreciation = ($95000 - $5000) / 5 years life = $18,000

The double entry would be:

Dr Depreciation Expense $18,000

Cr Accumulated Depreciation $18,000