Depreciation



Q41. Depreciation
On January 1, 20×1, Entity A purchased a building with the following information.
(a) Cost of building = $900,000
(b) Residual value (salvage value) = $90,000
(c) Expected useful life = 30 years
(d) Entity A uses the straight-line depreciation method.
Prepare a journal entry to record the depreciation expense for the year ending December 31, 20×1.

A41. Straight-line depreciation method

  Debit Credit
Depreciation expense 27,000  
     Accumulated depreciation   27,000

[Note]
Annual depreciation expense = (Cost – Residual value) x 1/Useful life
= ($900,000 – $90,000) x 1/30
= $810,000 x 1/30 = $27,000

[Exercise]
On September 1, 20×1, Entity B purchased equipment with the following information.
(a) Cost of equipment = $600,000
(b) Residual value (salvage value) = $60,000
(c) Expected useful life = 10 years
(d) Entity B uses the straight-line depreciation method.
Prepare a journal entry to record the depreciation expense for the four-month period from September 1 to December 31, 20×1.

  Debit Credit
Depreciation expense 18,000  
     Accumulated depreciation   18,000

[Note]
1. Annual depreciation expense = (Cost – Residual value) x 1/Useful life
= ($600,000 – $60,000) x 1/10 = $540,000 x 1/10 = $54,000
2. Depreciation expense for the four-month period from September 1 to December 31, 20×1
= Annual depreciation expense x 4/12 = $54,000 x 4/12 = $18,000

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