J. B. Consulting purchased a machine for $6,000 on August 1, 2019. The company expects the useful life of the machine to be 5 years and no salvage value is expected. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 2019?
A)Debit Depreciation Expense $500 and Credit Equipment $500.
B)Debit Depreciation Expense $400 and Credit Accumulated Depreciation $400.
C)Debit Depreciation Expense $500 and Credit Accumulated Depreciation $500.
D)Debit Accumulated Depreciation $100 and Credit Depreciation Expense $100.

Question

Quizplus · Accepted Answer

The company expects the useful life of the machine to be 5 years, so we will use the formula:

Depreciation Expense = (Cost - Salvage Value) / Useful Life

Since no salvage value is expected, the formula becomes:

Depreciation Expense = Cost / Useful Life

Depreciation Expense = $6,000 / 5 = $1,200 per year

Since the machine was purchased on August 1, 2019, the company only used the machine for 5/12 of the year, which is approximately 42%. The depreciation adjustment for the year ending December 31, 2019 will be:

Depreciation Expense for 2019 = $1,200 x 42% = $504

The journal entry to record the depreciation adjustment is:

Debit Depreciation Expense $500
Credit Accumulated Depreciation $500

So, the best choice is C.

J B Consulting Purchased a Machine for $6,000 on August 1