Practice prompt · Q:transactions-to-statements/depreciation-interpretation-001

Record and interpret a contra-asset depreciation entry

Formative check on depreciation expense, accumulated depreciation, carrying amount, and unsupported value or cash conclusions.

Updated Sep 6, 2026 Review due Nov 6, 2026

Practice

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Equipment costs $28,000, has $4,000 estimated residual value, a four-year life, and even expected service. Assume administrative use, no prior depreciation, and no other adjustments. After one full year, which entry and interpretation are correct?

Choose the best answer. A Debit Depreciation Expense and credit Accumulated Depreciation $6,000; carrying amount is $22,000; Cash and market value are not determined by the entry. B Debit Depreciation Expense and credit Equipment $6,000; the $22,000 Equipment balance is both carrying amount and market value. C Debit Cash and credit Accumulated Depreciation $6,000 because depreciation creates a replacement fund while reducing the asset. D Debit Accumulated Depreciation and credit Depreciation Expense $6,000 because a contra-asset has the same normal side as Equipment.

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Answer: A

One year allocates ($28,000 − $4,000) ÷ 4, or $6,000. Debit Depreciation Expense and credit the credit-normal contra-asset Accumulated Depreciation. Gross Equipment remains $28,000 and carrying amount becomes $22,000. The entry changes neither Cash nor demonstrated market value.