On the first day of the year Tan Traders purchased a forklift truck for $12 000 which is to be depreciated by 25% a year. At the end of the first year the adjusting entry to record depreciation is which of the following?
A) Debit depreciation of forklift $3000; credit forklift $3000
B) Debit depreciation of forklift $3000; credit accumulated depreciation of forklift $3000
C) Debit depreciation of forklift $12 000; credit accumulated depreciation of forklift $12 000
D) Debit accumulated depreciation of forklift $3000; credit depreciation of forklift $3000

Question

Quizplus · Accepted Answer

The adjusting entry to record depreciation at the end of the first year is to debit depreciation expense of forklift $3000 and to credit accumulated depreciation of forklift $3000. This is because the forklift has a useful life of 4 years (100%/25% = 4), and therefore, the depreciation expense each year is 25% of the original cost ($12,000 x 25% = $3000). Accumulated depreciation is a contra-asset account that represents the total depreciation expense recorded to date. Therefore, by the end of the first year, the accumulated depreciation of the forklift will be $3000, which is the same as the first year's depreciation expense.

On the First Day of the Year Tan Traders Purchased