The Harris Company Ltd purchased a computer for $3,000 on 1 December. It is estimated that annual depreciation on the computer will be $600. If financial statements are to be prepared on 31 December, the company should make the following adjusting entry:Group of answer choicesDebit Depreciation expense, $50; Credit Accumulated depreciation, $50.Debit Depreciation expense, $600; Credit Accumulated depreciation, $600.Debit Office equipment, $3,000; Credit Accumulated depreciation, $3,000.Debit Office equipment $2,400; Credit Accumulated depreciation, $2,400.
Question
The Harris Company Ltd purchased a computer for 600. If financial statements are to be prepared on 31 December, the company should make the following adjusting entry:Group of answer choicesDebit Depreciation expense, 50.Debit Depreciation expense, 600.Debit Office equipment, 3,000.Debit Office equipment 2,400.
Solution
The company should make the following adjusting entry: Debit Depreciation expense, 50.
Here's why:
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Depreciation is the process of allocating the cost of a tangible asset over its useful life. In this case, the annual depreciation of the computer is $600.
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However, the company has only used the computer for one month (December) by the time the financial statements are prepared on 31 December.
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Therefore, the depreciation expense for this one month is 1/12 of the annual depreciation, which is 50.
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The adjusting entry is to debit (increase) the Depreciation Expense account by 50. This reflects the fact that the computer has depreciated in value by $50 over the month of December.
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