Question

Pecos Yo Company purchased a machine for $100,000 in cash on August 1 of Year 1. The machine has an estimated useful life of 10 years and an estimated salvage value of $10,000. Pecos Yo Company uses the straight-line method for computing depreciation expense.

Which ONE of the following is included in the journal entry necessary to record depreciation expense on the machine for Year 2?
a. CREDIT to Accumulated Depreciation for $18,000
b. CREDIT to Accumulated Depreciation for $5,250
c. CREDIT to Accumulated Depreciation for $14,750
d. CREDIT to Accumulated Depreciation for $12,750
e. CREDIT to Accumulated Depreciation for $9,000

Answer 1

Option E. CREDIT to Accumulated Depreciation for $9,000

Step-by-step explanation:

The formula to compute depreciation expense is given as under:

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

By putting values we have:

Depreciation Expense = (100,000 - 10,000) / 10 Years = 9,000 per year

The double entry for the year 2 would be:

Dr Depreciation Expence 9,000

Cr Accumulated Depreciation 9,000