Problem 1. ABC Co. purchases equipment with a cost of $120,000 on January 1, 2023. ABC paid cash. The equipment has no salvage value. The useful life is 5 years. a. Record the journal entry for the purchase of the equipment. b. Calculate the depreciation for the first year, 2023, using straight line depreciation and record the appropriate journal entry. c. What is the book value after the 2023 entry for depreciation? d. Calculate the depreciation for 2024, using straight line depreciation and record the appropriate journal

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.