Multiple Choice
In adjusting entries for depreciation, accumulated depreciation is best classified as which type of account on the balance sheet?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
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What will be the book value of the asset after two years?
A
\$40,000
B
\$30,000
C
\$20,000
D
\$10,000
E
\$0
Verified step by step guidance1
Identify the initial cost of the asset, which is \$40,000.
Determine the method of depreciation being used (e.g., straight-line, declining balance). For this example, let's assume straight-line depreciation.
Calculate the annual depreciation expense. If the asset has a useful life of 4 years, the annual depreciation would be \$40,000 divided by 4, which is \$10,000 per year.
Subtract the annual depreciation from the initial cost to find the book value at the end of each year. After the first year, the book value would be \$40,000 - \$10,000 = \$30,000.
Repeat the process for the second year. Subtract another \$10,000 from the book value at the end of the first year to find the book value at the end of the second year, which would be \$30,000 - \$10,000.
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