Gates Publishing Company purchased equipment and placed it in service on January

Question

Gates Publishing Company purchased equipment and placed it in service on January 1, 2015. The cost of equipment was $5,400,000. The company decided to depreciate the equipment using the straight line method. Which of the following is one effect o recognizing depreciation expense during the year?

A. Expenses and the net book value pf the equipment increase

B. Net book value of the equipment decreases and expenses increase

C. Shareholders Equity increases and equipment account increases

D. None of the above are correct

Explanation / Answer

B. Net book value of the equipment decreases and expenses increase

Depreciation would increase the expenses and it would increase the accumulated depreciation which is reduced from the cost of asset thus reducing the book value of the asset.

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