Question

•On 12/31/16, GCC purchased an equipment for $50,000.

•GCC expects the equipment to have a 5-yr useful life with no “salvage value”.

•GCC uses straight line depreciation.

•

•Questions:

1.What journal entry should GCC book for the purchase of the equipment?

2.How much is the monthly depreciation expense?

3.What journal entry should GCC book monthly for the depreciation expense?

4.What is the balance of accumulated depreciation at the end of year 2?

5.What is the net book value of the equipment at the end of year 2?

6.Which statements should you report (i) depreciation expenses? (ii) accumulated depreciation?

Answer 1

1	Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset
	Depreciation expense = (50000-0) /5	10000	Accumulated depreciation
		Depreciation expense		Book value
Year 0			0	50000
1	10000*12/12	10,000	10,000	40,000
2	10000*12/12	10,000	20,000	30,000
3	10000*12/12	10,000	30,000	20,000
1	Equipment	50000
	Cash		50000
2	Depreciation expense per month = 10000*1/12	833
3	Depreciation expense	833
	Accumulated depreciation equipment		833
4	Accumulated depreciation at end of year 2	20000
5	Book value at end of year 2	30000
6	Depreciation expense	Income statement
	Accumulated depreciation	Balance sheet