Question

a. Barga Company purchases \(20,000 of equipment on January 1, 2017. The equipment is expected tolast five years and be worth \)2,000 at the end of that time. Prepare the entry to record one year’sdepreciationexpense of \(3,600 for the equipment as of December 31, 2017.

b. Welch Company purchases \)10,000 of land on January 1, 2017. The land is expected to last indefinitely.What depreciation adjustment, if any, should be made with respect to the Land account as ofDecember 31, 2017?

Short answer

Depreciation account is debited with $3,600 and the accumulated deoreciation account is credited with $3,600.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of depreciation

Depreciation means the fall in the value of the machinery due to constant use.

Entry for depreciation

	Journal entry
Date	Particular	Debit	Credit
December 31	Depreciation expense	$3,600
	Accumulated Depreciation		$3,600
	(Being adjustment of depreciation)

$$\begin{gathered} \mathbf{Annual}\mathbf{Depreciation}\mathbf{=}\mathbf{}\frac{\mathbf{Total}\mathbf{Depreciation}}{\mathbf{Life}\mathbf{of}\mathbf{asset}} \\ \mathbf{=}\frac{\$18,000}{5} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{600} \end{gathered}$$