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Barga Company purchases $38,000 of equipment on January 1, 2017. The equipment is expected to last five years and be worth $5,600 at the end of that time.
Welch Company purchases $11,800 of land on January 1, 2017. The land is expected to last indefinitely.

Prepare the entries to record one year’s depreciation expense of $6,480 for the equipment and what depreciation adjustment, if any, should be made with respect to the Land account as of December 31, 2017? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer :

akiran007

Answer:

Depreciation of the machinery = Value of machinery- Residual Value/No Of years

Depreciation= $ 38,000- $ 5600/5= $ 32,400/5= $ 6480

At the end of the year the entry of depreciation will be passed for equipment only .There's no depreciation of land. Land has unlimited life so it can be depreciated but others assets such as buildings land improvements have a limited life so they are depreciated. The relating entry for depreciation would be

Sr. No                      Account                       Dr.                       Cr.

   1                 Depreciation Expense        $ 6480

                Accumulated Depreciation                               $ 6480

   

   2             Profit & Loss Account              $ 6480

                   Depreciation Account                                 $ 6480

Depreciation expense transferred to Profit & Loss Account

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