Gomez Company purchases a piece of equipment on Jan.2,2014,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2014,using the straight-line method,is

Question

Quizplus · Accepted Answer

To calculate straight-line depreciation, we need to determine the depreciable cost of the asset. The depreciable cost is the cost of the asset minus its residual value, divided by its useful life.

Depreciable cost = ($30,000 - $3,000) / 8 = $3,375 per year

Therefore, the entry to record the annual depreciation expense would be:

Debit Depreciation Expense $3,375 
Credit Accumulated Depreciation $3,375

This entry reduces the net value of the asset by $3,375 and accumulates that amount in the Accumulated Depreciation account. This continues every year until the asset is fully depreciated or disposed of.

Gomez Company Purchases a Piece of Equipment on Jan