Jackson Co. purchases equipment with a cost of $26,000 and a trade-in value of $2,000. Jackson Co. estimates that the equipment will have a useful life of 5 years. Assuming Jackson Co. records depreciation for six months using the straight-line method, the adjustment would be recorded in the work sheet as a:
A) a debit to equipment and credit to depreciation expense, $2,400.
B) a debit to accumulated depreciation and a credit to equipment, $2,400.
C) a debit to depreciation expense and a credit to equipment, $2,400.
D) a debit to depreciation expense and a credit to accumulated depreciation, $2,400.

Question

Quizplus · Accepted Answer

The straight-line method of depreciation allocates equal amounts of depreciation expense over the useful life of an asset.

To calculate the annual depreciation expense, we need to subtract the trade-in value from the cost of the equipment and divide the result by the useful life in years:

($26,000 - $2,000) / 5 = $4,800 per year

To record depreciation for the first six months, we need to multiply the annual depreciation expense by 1/2:

$4,800 / 2 = $2,400

We would then record the adjusting entry at the end of the period as a debit to depreciation expense and a credit to accumulated depreciation for $2,400.

Therefore, the correct answer is D.