Sweet Stuff Co. purchases equipment with a cost of $36,400 and a trade-in value of $4,000. Sweet Stuff Co. estimates that the equipment will have a useful life of 9 years. Assuming Sweet Stuff Co. records depreciation for one month using the straight-line method, the adjustment would be recorded in the work sheet as a:
A) credit to depreciation expense, $3,600.
B) debit to depreciation expense, $300.
C) credit to equipment, $300.
D) credit to accumulated depreciation, $3,600.

Question

Quizplus · Accepted Answer

Since the equipment has a useful life of 9 years, the straight-line method would allocate the cost over 9 years or 108 months (9 years x 12 months). Therefore, the monthly depreciation expense would be ($36,400 – $4,000) / 108 months = $300.

At the end of the first month, Sweet Stuff Co. would record an adjusting entry to recognize the depreciation expense for the period. Since depreciation is an expense, it would be debited, and the corresponding credit would be to accumulated depreciation. Therefore, the correct answer is B) debit to depreciation expense, $300.