Zeeshan A. answered • 06/24/25
Accounting Lecturer with 15+ Years of Teaching Experience
Accounting for Depreciation: Equipment Purchased on January 1, 2025
Given Information:
- Cost of Equipment = $50,000
- Estimated Useful Life = 5 years
- Estimated Salvage Value = $5,000
- Depreciation Method = Straight-Line
(i) How to Calculate Annual Depreciation Expense Using the Straight-Line Method
The straight-line method allocates the depreciable cost of an asset evenly over its useful life.
Step 1: Understand the Formula
Annual Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life
Step 2: Plug in the Values
= (50,000 - 5,000) / 5
= 45,000 / 5
= 9,000
Answer:
The annual depreciation expense is $9,000.
(ii) Book Value of the Equipment at the End of Year 1
Step 1: Understand Book Value
Book Value = Cost of Asset - Accumulated Depreciation
At the end of Year 1, only one year's depreciation has been charged.
Step 2: Calculate
Book Value = 50,000 - 9,000 = 41,000
Answer:
The book value of the equipment at the end of the first year is $41,000.
(iii) Journal Entry for Recording Depreciation at the End of Year 1
Depreciation is recorded at the end of each accounting period to allocate part of the asset's cost to the income statement as an expense.
Date: December 31, 2025
Journal Entry:
Debit: Depreciation Expense 9,000
Credit: Accumulated Depreciation 9,000
Explanation:
- "Depreciation Expense" is an expense account. It increases with a debit and appears on the income statement.
- "Accumulated Depreciation" is a contra-asset account. It increases with a credit and appears on the balance sheet, reducing the book value of the asset.
