Suppose that on January 1 Newman Travel Company paid cash of $20,000 for equipme

Question

Suppose that on January 1 Newman Travel Company paid cash of $20,000 for equipment that is expected to remain useful for two years. At the end of two years, the equipment's value is expected to be zero Read the requirements 1. Make journal entries to record (a) purchase of the equipment on January 1 and (b) annual depreciation on December 31. Include dates and explanations, and use the following accounts: Equipment, Accumulated Depreciation-Equipment and Depreciation Expense-Equipment. 1a. Record the purchase of the equipment. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Journal Entry Date Accounts and Explanation Debit Credit Jan

Explanation / Answer

My funda to make journal entries -

means Asset Debit when assets side increase and credit when asset side decrease

liability debit when liability side decrease and liability credit when liability side increase

Journal Entries -

Ist journal entry would be required when asset purchase, as assets purchase through cash so cash will be decreased and machine increase in assets side by 20000 of balance sheet so

Equipment A/c Dr. 20000

To Cash A/c 20000

(Being Assets purchased)

2nd Entry -

As accumulated depreciation is a contra assets account (an assets account with a credit balance) that adjust the book value of the capital assets. As equipment has purchased for 20000

and first-year dep. is 10000. so depreciation expense will decrease the book value of assets (debit side) and increase accumulated depreciation account (credit side)

so journal entry would be

Depreciation account Dr. 10000

To Accumulated Depreciation A/c 10000

(Being Depreciation expense recorded)

at the end of 2nd-year same entry of depreciation has been recorded -

Depreciation A/c Dr. 10000

To Accumulated Depreciation A/c 10000

(Being Depreciation expense recorded)

at the end of the 2nd year when assets have no use and it will dispose off then the following journal entry will be required -

Accumulated Depreciation A/c Dr. 20000

To Equipment A/c 20000

(Being assets disposed off)

Note - As machine life is 2 years and the machine cost is 20000 with no salvage value at the end of the year and in financials straight-line depreciation method follows.

so Depreciation per year = (20000-0) /2 = 10000 [(Assets cost -salvage value)/Life of assets)

Please let me know if any confusion.

Balance sheet Liabilities Amt. Assets Amt. Dr- Dr + Cr+ Cr -

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