Company prepares annual financial statements. On January 1, 2012, it purchased a

Question

Company prepares annual financial statements. On January 1, 2012, it purchased a machine for $80,000. Its estimated useful life was 6 years and its estimated disposal value in 6 years was $7,000. Using straight-line depreciation, what is the adjusting entry on December 31, 2014?
Equipment and Retained Earnings both decrease by $13,333
Equipment and Paid-In Capital both decrease by $12,167
Equipment and Retained Earnings both decrease by $12,167
Equipment and Retained Earnings both increase by $24,333
Equipment and Retained Earnings both decrease by $24,333
Equipment and Paid-In Capital both decrease by $13,333

Explanation / Answer

Date of Machinery Purchase = January 1, 2012

Cost of the Machine = $ 80,000 and Estimated Disposal Value in 6 years = $ 7,000

Useful life of the Machine = 6 Years

Mehtod of Depreciation = Straight Line Method

Therefore, Depreciation per Year = (80,000 - 7000) / 6 = 63,000 / 7 = $ 12,167

The result of Depreciation, Reduces the Equipment and Retained earnings.

The Answer is

Equipment and Retained Earnings both decrease by $ 12,167

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