A business acquired equipment for $150,000 on January 1, 2015. The equipment will be depreciated over five years of its useful life using the straight-line depreciation method. The business records depreciation once a year on December 31. Which of the following is the adjusting entry required to record depreciation on equipment for the year 2015? (Assume the salvage value of the acquired equipment to be zero.)
A)Debit $150,000 to Equipment and credit $150,000 to Cash.
B)Debit $150,000 to Depreciation Expense and credit $150,000 to Accumulated Depreciation.
C)Debit $30,000 to Depreciation Expense and credit $30,000 to Accumulated Depreciation.
D)Debit $30,000 to Depreciation Expense and credit $30,000 to Equipment.

Question

Quizplus · Accepted Answer

The adjusting entry required to record depreciation on equipment for the year 2015 is to debit $30,000 to Depreciation Expense and credit $30,000 to Accumulated Depreciation. This is because the business is using the straight-line depreciation method, which means that the total depreciation expense for the useful life of the equipment will be evenly spread out over the 5-year period. Therefore, the annual depreciation expense will be $150,000 ÷ 5 = $30,000. At the end of the first year, December 31, 2015, the business needs to record the depreciation expense of $30,000 and reduce the carrying value of the equipment by the same amount by crediting Accumulated Depreciation.

A Business Acquired Equipment for $150,000 on January 1, 2015