The Delivery Vehicles account in the ledger of Transit Co. has a balance of $55 000 which is the cost of two second-hand trucks purchased on 1 July 2017. The Accumulated Depreciation - Delivery Vehicles account has a balance on 30 June 2020, before adjusting entries, of $20 000. No additional delivery trucks have been acquired or
Sold. The residual value of each truck is estimated to be $2500 and the straight-line depreciation method is used. What is the necessary adjusting entry to record annual depreciation on 30 June 2020?

Question

Quizplus · Accepted Answer

The necessary adjusting entry to record annual depreciation on 30 June 2020 is to debit Depreciation Expense for $10 000 and credit Accumulated Depreciation for $10 000. This is because the cost of the trucks ($55 000) minus their residual value ($2 500 x 2 = $5 000) gives a depreciable amount of $50 000, which is then divided by the trucks' estimated useful life (3 years) to give an annual depreciation expense of $16 666.67 ($50 000 ÷ 3 years ÷ 2 trucks). As the Accumulated Depreciation balance on 30 June 2020 is $20 000, which represents the total depreciation expense for the past three years, the necessary adjusting entry is to record the current year's depreciation expense of $16 666.67 ($20 000 - $16 666.67 = $3 333.33) by debiting Depreciation Expense and crediting Accumulated Depreciation. Therefore, the correct answer is D.

The Delivery Vehicles Account in the Ledger of Transit Co