Squirrel Co. purchases equipment with a cost of $20,000 and a trade-in value of $2,000. Squirrel Co. estimates that the equipment will have a useful life of 5 years. Assuming Squirrel Co. records depreciation for the entire year, the adjusting entry would be recorded as
A)
$\begin{array} { l r }
\text { Depreciation Expense } & \$ 3,600 \
\text { Equipment } & \$ 3,600
\end{array}$
B)
$\begin{array} { l r }
\text { Accumulated Depreciation } & \$ 3,600 \
\text { Depreciation Expense } & \$ 3,600
\end{array}$
C)
$\begin{array} { l c }
\text { Depreciation Expense } & \$ 3,600 \
\text { Cash } & \$ 3,600
\end{array}$
D)
$\begin{array} { l r }
\text { Depreciation Expense } & \$ 3,600 \
\text { Accumulated Depreciation } & \$ 3,600
\end{array}$

Question

Squirrel Co. purchases equipment with a cost of $20,000 and a trade-in value of $2,000. Squirrel Co. estimates that the equipment will have a useful life of 5 years. Assuming Squirrel Co. records depreciation for the entire year, the adjusting entry would be recorded as
A) 
$\begin{array} { l r } 
\text { Depreciation Expense } & \$ 3,600 \
\text { Equipment } & \$ 3,600
\end{array}$
B) 
$\begin{array} { l r } 
\text { Accumulated Depreciation } & \$ 3,600 \
\text { Depreciation Expense } & \$ 3,600
\end{array}$
C) 
$\begin{array} { l c } 
\text { Depreciation Expense } & \$ 3,600 \
\text { Cash } & \$ 3,600
\end{array}$
D)
$\begin{array} { l r } 
\text { Depreciation Expense } & \$ 3,600 \
\text { Accumulated Depreciation } & \$ 3,600
\end{array}$

Quizplus · Accepted Answer

The correct calculation for depreciation is the cost of the equipment minus the trade-in value, divided by the useful life. This equals $(\$20,000 - \$2,000) / 5 = \$3,600$ per year. The adjusting entry for depreciation increases Depreciation Expense and increases Accumulated Depreciation, not the Equipment account directly.

Squirrel Co Depreciation Expense $3,600 Equipment $3,600\begin{array} { l r } \text { Depreciation Expense } & \$ 3,600 \\\text { Equipment } & \$ 3,600\end{array} Depreciation Expense Equipment ​$3,600$3,600​

Squirrel Co $\begin{array} { l r } \text { Depreciation Expense } & \$ 3,600 \\\text { Equipment } & \$ 3,600\end{array}$