Question

Holiday Amusement Park paid $ 450 comma 000 for a concession stand. Holiday started out depreciating the building using the​ straight-line method over 25 years with a residual value of zero. After using the concession stand for five ​years, Holiday determines that the building will remain useful for only five more years. Record Holiday​'s depreciation on the concession stand for year six using the​ straight-line method. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Answer 1

Debit Depreciation expense $72,000

Credit Accumulated depreciation $72,000

Step-by-step explanation:

Depreciation is the systematic allocation of the cost of an asset to p/l based on its estimated useful life. Depreciation is the result of the cost less salvage value divided by estimated useful life. It is accounted for by debiting depreciation expenses and credit accumulated depreciation. Mathematically,

Annual depreciation = (cost - salvage value) / estimated useful life

= (450000 - 0)/25

= $18,000

After 5 years,

Accumulated depreciation = 5 * $18,000

= $90,000

Netbook value (which is the difference between the cost and accumulated depreciation) of the asset

= $450,000 - $90,000

= $360,000

Since the remaining useful life is 5 years

Depreciation in the 6th year

= $360,000 / 5

= $72,000

Debit Depreciation expense $72,000

Credit Accumulated depreciation $72,000