On January 1, Super Car Wash purchases a brand new auto-washing machine on account for \$40,000. The company expects the machine to last eight years. The company chose the 'straight-line' method to depreciate the asset, expecting no salvage value. The adjusting entry at the end of the first year would include:

• A. Debit Depreciation Expense \$5,000; Credit Accumulated Depreciation \$5,000
• B. Debit Accumulated Depreciation \$5,000; Credit Depreciation Expense \$5,000
• C. Debit Depreciation Expense \$40,000; Credit Accumulated Depreciation \$40,000
• D. Debit Accumulated Depreciation \$40,000; Credit Depreciation Expense \$40,000

Answer: (A)

Verified step by step guidance

1. Identify the cost of the asset, which is \$40,000, and note that the asset has no salvage value and a useful life of 8 years.
2. Understand that the straight-line method of depreciation spreads the cost of the asset evenly over its useful life.
3. Calculate the annual depreciation expense using the formula: \( \text{Annual Depreciation Expense} = \frac{\text{Cost of the Asset} - \text{Salvage Value}}{\text{Useful Life}} \).
4. Substitute the given values into the formula: \( \text{Annual Depreciation Expense} = \frac{40,000 - 0}{8} \).
5. Prepare the adjusting journal entry at the end of the first year by debiting Depreciation Expense and crediting Accumulated Depreciation with the calculated annual depreciation expense.