Multiple Choice
In financial accounting, Accumulated Depreciation is 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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On January 1, 1989 XYX Company purchased a machine for \$180,000 in cash. The company estimated a nine year useful life with no salvage value. After the correct entries are made, what will be the balance in the Accumulated Depreciation account on December 31, 1992?
A
\$20,000
B
\$60,000
C
\$80,000
D
\$180,000
Verified step by step guidance1
Determine the cost of the machine, which is \$180,000.
Identify the useful life of the machine, which is estimated to be 9 years.
Since there is no salvage value, the entire cost of the machine will be depreciated over its useful life.
Calculate the annual depreciation expense using the straight-line method: Annual Depreciation = Cost / Useful Life = \$180,000 / 9 years.
Calculate the accumulated depreciation by December 31, 1992, which is 4 years after the purchase: Accumulated Depreciation = Annual Depreciation * Number of Years = (Cost / Useful Life) * 4.
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