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18 April, 22:40

On September 1, Crestview Company purchased equipment for $25,000. The equipment's estimated salvage value is $2,500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a:

A) $1,500 debit to Depreciation Expense and a $1,500 credit to Equipment.

B) $4,500 debit to Depreciation Expense and a $4,500 credit to Equipment.

C) $4,500 debit to Depreciation Expense and a $4,500 credit to Accumulated Depreciation.

D) $4,500 debit to Depreciation Expense and a $4,500 credit to Cash.

E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

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  1. 18 April, 23:01
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    E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

    Explanation:

    Depreciation for one year = (Cost of Equipment - Estimated Salvage value) / Useful life

    Depreciation for one year = ($25,000 - $2,500) / 5

    Depreciation for one year = $4,500 per year

    Depreciation charge for the year on December 31 = $4,500 x (4 / 12) = $1,500

    $1,500 will be charged as expense and it will also be credited to the accumulated depreciation account.
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