X Company prepares annual financial statements. On January 1, 2012, it purchased
ID: 2483607 • Letter: X
Question
X Company prepares annual financial statements. On January 1, 2012, it purchased a machine for $72,000. Its estimated useful life was 6 years and its estimated disposal value in 6 years was $7,000. Using straight-line depreciation, what is the adjusting entry on December 31,2015?
A) Equipment and Paid-In Capital both decrease by $12,000
B) Equipment and Retained Earnings both decrease by $32,500
C) Equipment and Paid-In Capital both decrease by $10,833
D) Equipment and Retained Earnings both increase by $32,500
E) Equipment and Retained Earnings both decrease by $10,833
F) Equipment and Retained Earnings both decrease by $12,000
Explanation / Answer
Date of Purhcase = January1, 2012
Cost of the Machinery = $ 72,000
Estimated Disposal Value in 6 years = $ 7,000
Useful Life = 6 year
Depreciation per year ( from 2012 to 2016) = (72000-7000) / 6 = $ 10,833
Depreciation is the expense and the Value of the machine and earning decreases.
Therefore, The Answer is " E "
Equipment and Retained Earnings both decrease by $ 10,833
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