Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to record annual depreciation is:
A) Debit Depreciation Expense, $15,000; credit Equipment, $15,000.
B) Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.
C) Debit Depreciation Expense, $10,000; credit Accumulated Depreciation, $10,000.
D) Debit Depreciation Expense, $10,000; credit Equipment, $10,000.
E) Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000.

Question

Quizplus · Accepted Answer

The adjusting entry needed to record annual depreciation is a debit to Depreciation Expense for $15,000 and a credit to Accumulated Depreciation for $15,000. This entry reflects the decrease in the value of the asset over its useful life and the increase in the total amount of depreciation expense that has been recognized over time. Option B is the correct choice as this entry is the only one that reflects the use of the straight-line depreciation method, the annual depreciation of $15,000, and the adjustment needed at year-end.

Holman Company Owns Equipment with an Original Cost of $95,000