A business acquired equipment for $135,000 on 1 January 2017.The equipment will be depreciated over five years of its useful life using the straight-line depreciation method.The business records depreciation once a year on 31 December.Which of the following is the adjusting entry required to record depreciation on equipment for the year 2017? (Assume the salvage value of the acquired equipment to be zero. )
A)Debit $27,000 to Depreciation expense and credit $135,000 to Accumulated depreciation.
B)Debit $27,000 to Depreciation expense and credit $27,000 to Equipment.
C)Debit $27,000 to Depreciation expense and credit $27,000 to Accumulated depreciation.
D)Debit $135,000 to Equipment and credit $135,000 to Cash.

Question

Quizplus · Accepted Answer

The adjusting entry required to record depreciation on equipment for the year 2017 is Debit $27,000 to Depreciation expense and credit $27,000 to Accumulated depreciation. This is because the straight-line depreciation method allocates equal amounts of depreciation expense over the useful life of the equipment. In this case, the equipment has a useful life of five years, so the annual depreciation expense would be $27,000 ($135,000 divided by 5). The credit entry is to Accumulated depreciation, which is a contra-asset account that is used to record the cumulative depreciation of the equipment. By the end of the fifth year, the balance in Accumulated depreciation should equal the cost of the equipment ($135,000), which means that the equipment has been fully depreciated. Option A, B, and D are incorrect as they do not follow the standard accounting rules for recording depreciation.

A Business Acquired Equipment for $135,000 on 1 January 2017