Question

For each separate case, record an adjusting entry (if necessary). Barga Company purchases $32,000 of equipment on January 1. The equipment is expected to last five years and be worth $4,400 at the end of that time. Welch Company purchases $11,200 of land on January 1. The land is expected to last forever. Prepare the entries to record one year’s depreciation expense of $5,520 for the equipment and what depreciation adjustment, if any, should be made with respect to the Land account as of December 31? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Equipment can be depreciated and the journal entry would be:

December 31, 202x, depreciation expense

Dr Depreciation expense 5,520

Cr Accumulated depreciation - equipment 5,520

Accumulated depreciation is a contra asset account that decreases the net value of a fixed asset.

On the other hand, land cannot be depreciated. Land must always be reported at its historical cost (purchase price) even if its fair market value increases or decreases over time.