Chapter 3, Problem 3.9BE

(1)

To determine

To record: The journal entry for purchasing of equipment on April 1, 2015.

Answer to Problem 3.9BE

The journal entry for purchasing of equipment is as follows:

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
April 1, 2015	Equipment		50,400
	Cash			50,400
	(To record the purchase of equipment.)

Table (1)

Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Following is the rules of debit and credit of above transaction:

• Equipment is an asset. There is an increase in the asset, therefore it is debited.
• Cash is an asset. There is a decrease in the asset, therefore it is credited.

Accounting equation:

The following is the accounting equation for the purchase of equipment.

$\begin{array}{c}\begin{array}{l}\text{Assets}\\ \left(\begin{array}{c}(+)\$50,400\left(\text{Equipment}\right)\\ (-)\$50,400\left(\text{Cash}\right)\end{array}\right)\\ \end{array}\}=\text{Liabilities}+\left\{\begin{array}{l}\text{Stockholder's }\\ \text{equity}\end{array}\right\}\\ \end{array}$

(2)

To determine

To record: The adjusting entry for depreciation expense on December 31, 2018.

Answer to Problem 3.9BE

Date	Accounts title and explanation	Post Ref.	Debit ($)	Credit ($)
December 31, 2015	Depreciation Expense		5,400
	Accumulated Depreciation			5,400
	(To record the amount of depreciation for the year)

Table (2)

Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occurs.

Following is the rules of debit and credit of above transaction:

• Depreciation expense is an expense, and it decreased the value of stockholder’s equity. Therefore, it is debited.
• Accumulated depreciation is a contra-asset account. There is a decrease in assets, therefore it is credited.

Accounting equation:

The following is the accounting equation for the adjustment entry of depreciation:

$\begin{array}{l}\begin{array}{l}\text{Assets}\\ (-)\$5,400\text{Accumulated }\\ \text{ depreciation}\end{array}\}=\text{Liabilities}+\left\{\begin{array}{l}\text{Stockholder's equity}\\ (-)\$5,400\text{Depreciation}\\ \text{expense}\end{array}\right\}\\ \end{array}$

(3)

To determine

To calculate: The value of year-end adjusted balances of accumulated depreciation and depreciation expense.

Answer to Problem 3.9BE

The value of year-end adjusted balances of accumulated depreciation and depreciation expense is $5,400 and $5,400 respectively.

Explanation of Solution

Depreciation expenses:

Depreciation expenses refer to the amount of depreciation that is reported (expenses) on the income statement.

Accumulated depreciation:

Accumulated depreciation refers to the amount of depreciation that is subtracted from the value of assets in the balance sheet over a period of time.

Calculation of accumulated depreciation and depreciation expense as follows:

Details	Accumulated depreciation	Depreciation expense
January 1, 2015 - Beginning balance	$0	$0
Adjustment: Depreciation during the year	$5,400	$5,400
December 31, 2015- Ending balance	$5,400	$5,400

Table (3)