Sonya's Fabrics purchased display equipment two years ago on 1 January for $10 000. Its expected useful life was five years, and its residual value $1000. To record the depreciation for the current year just ended on 31 December, what would be the accounting entry, using the straight-line method?

Question

Quizplus · Accepted Answer

The straight-line method of depreciation evenly spreads the cost of the asset over its useful life. Therefore, the annual depreciation expense would be ($10,000 - $1,000) / 5 years = $1,800 per year. To record the depreciation for the current year, the accounting entry would be to increase the depreciation expense by $1,800 and increase the accumulated depreciation by $1,800. This would be represented as:

Depreciation expense       $1,800
Accumulated depreciation    $1,800

So, the correct option is C.

Sonya's Fabrics Purchased Display Equipment Two Years Ago on 1