Question
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 12/31/13 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 2013 if the double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets. |
Double-declining balance | |
Year 1 (2010) | $ |
Year 2 (2011) | $ |
Year 3 (2012) | $ |
Year 4 (2013) | $ |
2. | If Company B decided to switch depreciation methods in 2013 from the straight line to the double-declining-balance method, prepare the 2013 adjusting journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2013 has been recorded. (Do not round intermediate calculations.) |
General Journal | Debit | Credit |
MY ANSWER:
Year 1 : 25000
Year 2 : 20000
Year 3 : 16000
Year 4 : 12800
Dep. Ep. 20000
Accumulated Dep. 20000
Just looking for feedback, Not 100% sure if its right. Thanks in advance
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