Michael purchased two vehicles for his business on 1 January 2014. These vehicles cost $70 000 each and have a useful life of 5 years with an expected residual of $20 000 each. The adjusting entry for depreciation on 31 December 2014, using the straight-line method, is which of the following?
A) DR Accumulated depreciation $10 000; CR Depreciation expense $10 000
B) DR Depreciation expense $10 000; CR Accumulated depreciation $10 000
C) DR Accumulated depreciation $20 000; CR Depreciation expense $20 000
D) DR Depreciation expense $20 000 CR Accumulated depreciation $20 000

Question

Quizplus · Accepted Answer

The straight-line depreciation method calculates depreciation by dividing the difference between an asset's cost and its expected residual value by the number of years it is expected to be used. For each vehicle: ($70,000 - $20,000) / 5 = $10,000 annual depreciation. For two vehicles, this amounts to $20,000 annually. The correct journal entry debits Depreciation Expense and credits Accumulated Depreciation for the total annual depreciation of both vehicles.

Michael Purchased Two Vehicles for His Business on 1 January