On Jan. 1, Alco Company purchases manufacturing equipment costing $95,000 that i

Question

On Jan. 1, Alco Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and a salvage value of $5,000. Alco uses the straight-line depreciation method. The adjusting entry needed on Dec. 31 is: Debit Depreciation Expense, $9,000, credit Accumulated Depreciation, $9,000. Debit Depreciation Expense, $18,010, credit Accumulated Depreciation, $18,000. Debit Depreciation Expense, $90,010, credit Accumulated Depreciation, $90,000. Debit Depreciation Expense, $18,000, credit Equipment $18,000. Debit Depreciation Expense, $9,000, credit Equipment, $9,000.

Explanation / Answer

Answer:

Adjusting Entry on December, 31 will be as follows:

b. Debit Depreciation Expense $18,000 ; Credit Accumulated Depreciation $18,000

Depreciation expense is presented in the Income Statement and the Accumulated Depreciation is presented in the Balance sheet. Accumulated depreciation is contra-asset account as accumulated depreciation is shoawn as deduction to the related fixed asset account. Depreciation expense = Asset cost - Salavage value / Life of Asset

= 95,000 - 5,000 / 5 = $18,000.

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