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The fact that generally accepted accounting principles allow companies flexibility in choosing between certain allocation methods can make it difficult for a financial analyst to

The fact that generally accepted accounting principles allow companies flexibility in choosing between certain allocation methods can make it difficult for a financial analyst to compare periodic performance from firm to firm. Suppose you were a financial analyst trying to compare the performance of two companies. Company A uses the double-declining-balance depreciation method. Company B uses the straight-line method. You have the following information taken from the 12/31/2021 year-end financial statements for Company B:

Income Statement
Depreciation expense $ 12,500

Balance Sheet
Assets:
Plant and equipment, at cost $ 125,000
Less: Accumulated depreciation (50,000 )
Net $ 75,000

You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the same time, and that all of the $125,000 represents depreciable assets. Also, all of the depreciable assets have the same useful life and residual values are zero. Required:

1. In order to compare performance with Company A, estimate what B's depreciation expense would have been for 2021 if the double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets.

image text in transcribed 2. If Company B decided to switch depreciation methods in 2021 from the straight line to the double-declining-balance method, prepare the 2021 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2021 has yet been recorded.

Double-declining balance Year 1 (2018) Year 2 (2019) Year 3 (2020) Year 4 (2021)

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