Question

On january 1, imlay company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. the adjusting entry needed on december 31 of the first year is:

Answer 1

The adjusting entry that will be made on December 31 is a debit to Depreciation Expense for $18,000 and a credit to Accumulated Depreciation for $18,000.

This is calculated using the following information:

The cost of the equipment is $95,000. Since it is estimated to be worth $5,000 at the end of it’s 5 year life there is $90,000 that will be depreciated over a 5 year useful life. Using the straight line method, you will divide $90,000 by 5 years and then depreciate $18,000 in each of the equipment’s five years of useful life.