Hercules Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $960. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
A) Debit Depreciation Expense, $960; Credit Accumulated Depreciation, $960.
B) Debit Depreciation Expense, $80; Credit Accumulated Depreciation, $80.
C) Debit Depreciation Expense, $3,840; Credit Accumulated Depreciation, $3,840.
D) Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

Question

Quizplus · Accepted Answer

The adjusting entry should debit Depreciation Expense and credit Accumulated Depreciation for the estimated annual depreciation of $960 ($4,800 / 5 years of useful life). Since the computer was purchased on December 1, only one month of depreciation needs to be recognized, which is $80 ($960 / 12 months). Therefore, option B is the best choice. Option A is incorrect because it recognizes the entire annual depreciation instead of only one month. Option C is also incorrect because it recognizes the total estimated depreciation over the useful life of the computer. Option D is incorrect because it is a purchase entry, not an adjusting entry for depreciation.

Hercules Company Purchased a Computer for $4,800 on December 1