Using straight-line depreciation for a delivery truck, cost 50,000, salvage 5,000, life 5 years, what is the annual depreciation and the correct journal entry?

Using straight-line depreciation for a delivery truck, cost 50,000, salvage 5,000, life 5 years, what is the annual depreciation and the correct journal entry?

• A. Annual depreciation = 9,000; Debit Depreciation Expense 9,000; Credit Accumulated Depreciation 9,000.
• B. Annual depreciation = 9,000; Debit Accumulated Depreciation 9,000; Credit Depreciation Expense 9,000.
• C. Annual depreciation = 40,000; Debit Depreciation Expense 40,000; Credit Accumulated Depreciation 40,000.
• D. Annual depreciation = 9,000; Debit Depreciation Expense 9,000; Credit Equipment 9,000.

Answer: (A)

Straight-line depreciation spreads the amount that can be recovered over the asset’s useful life by subtracting the salvage value from the cost and dividing by the years of use. Here, (50,000 − 5,000) / 5 = 9,000 per year. So the annual depreciation is 9,000. The proper journal entry records the expense and the corresponding accumulation of depreciation: Debit Depreciation Expense 9,000; Credit Accumulated Depreciation 9,000. This mirrors how depreciation affects the financial statements: the income statement reflects the expense, while the balance sheet increases a contra-asset account (Accumulated Depreciation) that reduces the truck’s net book value over time. Why the other approaches aren’t correct: crediting Depreciation Expense would decrease the expense rather than recognize it, which is not how depreciation is tracked. Using 40,000 as depreciation ignores the salvage value or misapplies the calculation. Crediting the Equipment account would directly reduce the asset’s balance rather than using the appropriate contra-asset account, which is not the standard method for recording depreciation.

Straight-line depreciation spreads the amount that can be recovered over the asset’s useful life by subtracting the salvage value from the cost and dividing by the years of use. Here, (50,000 − 5,000) / 5 = 9,000 per year. So the annual depreciation is 9,000.

The proper journal entry records the expense and the corresponding accumulation of depreciation: Debit Depreciation Expense 9,000; Credit Accumulated Depreciation 9,000. This mirrors how depreciation affects the financial statements: the income statement reflects the expense, while the balance sheet increases a contra-asset account (Accumulated Depreciation) that reduces the truck’s net book value over time.

Why the other approaches aren’t correct: crediting Depreciation Expense would decrease the expense rather than recognize it, which is not how depreciation is tracked. Using 40,000 as depreciation ignores the salvage value or misapplies the calculation. Crediting the Equipment account would directly reduce the asset’s balance rather than using the appropriate contra-asset account, which is not the standard method for recording depreciation.