The Reed Company uses the straight-line method to depreciate its equipment. On June 1, 2007, the company purchased some equipment for $200,000. The equipment is estimated to have a useful life of eight years and a salvage value of $20,000. How much depreciation expense should Reed record for the equipment in the adjusting entry on December 31, 2007? a. $6,000 b. $12,000 c. $13,125 d. $18,000
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.
The Reed Company uses the straight-line method to
a. $6,000
b. $12,000
c. $13,125
d. $18,000
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