Question

Discord Records paid $10,000 cash on 7/1/20 to purchase equipment, which is expected to last 4 years and have salvage value of $2.000. 1) Write out the 7/1/20 journal entry: 2) Write out the 12/31/20 adjusting journal entry (using the straight-line depreciation method). Note: because equipment was purchased halfway through the year, the annual depreciation expense should be multiplied by 6/12 (i.e., 50%): 3) The following is what Discord Records' Balance Sheet looks like WITHOUT these joumal entries. Edit (i.e., x out numbers that will change and write updated numbers to the right of them) the following balance sheet for all necessary changes based on both of those journal entries. Discord Records Balance Sheet December 31, 2020 2.000 Liabilities Accounts Payable Taxes Payable Deferred Revenue 5.000 10,000 Assets Cash Accounts Receivable Supplies Prepaid Insurance Equipment, net Building, net Land 40,000 4,000 1,000 3,000 35,000 50,000 12,000 Stockholders' Equity Common Stock Retained Earings 120,000 8,000 145,000 Total Assets Total Liabilities and Stockholders' Equity 145,000

Answer 1

1) 7/1/20 Journal entry:

Date	Account title and explanation	Debit	Credit
7/1/20	Equipment	$10,000
	Cash		$10,000
	[To record purchase of equipment for cash]

2) Adjusting entry:

Date	Account title and explanation	Debit	Credit
12/31/20	Depreciation expense	$1,000
	Accumulated depreciation		$1,000
	[To record depreciation expense]

Calculations:

Depreciation expense for 6 months = [(Cost-Salvage value)÷Estimated useful life ] x 6/12

= [($10,000-2,000)/4] x 6/12

=[$8,000/4] x 1/12

=$1000

3) Balance sheet:

Discord Records
Balance Sheet
December 31,2020
Assets	Before	After	Liabilities	Before	After
Cash	40,000	30,000	Accounts payable	2,000	2,000
Accounts receivable	4,000	4,000	Taxes payable	5,000	5,000
Supplies	1,000	1,000	Deferred Revenue	10,000	10,000
Prepaid Insurance	3,000	3,000
Equipment, net	35,000	44,000	Stockholders' Equity
Building, net	50,000	50,000	Common stock	120,000	120,000
Land	12,000	12,000	Retained earnings	8,000	7,000
Total assets	145,000	144,000	Total Liabilities and Stockholders' Equity	145,000	144,000

Explanation:

Cash balance reduced by 10,000 as cash paid for purchase of new equipment.

Equipment balance increased by $10,000 as it is a new purchase and reduced by $1000 for accumulated depreciation

Retained earnings was reduced by $1,000 as it is a depreciation expense