Q 8SE-2 - Horngren'S Financial And Managerial Accounting

Question

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

Step-by-Step Solution

Answer

Adjusting entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Oct.31	Depreciation Expense—Computer Equipment	$1,600
	Accumulated Depreciation— Computer Equipment		$1,600
	To record depreciation expense

Step-by-Step Solution Step 1: Explanation on Depreciation Expense

Depreciation expense is the process which allocates the cost of asset over the useful life of the asset.

Step 2: Explanation on Journal Entry

The depreciation expense will be recorded by debiting Depreciation Expense—Computer Equipment and crediting Accumulated Depreciation— Computer Equipment by $1,600, respectively.