The fact that generally accepted accounting principles allowcompanies flexibility in choosing between certain allocationmethods can make it difficult for a financial analyst to compareperiodic performance from firm to firm. Suppose you were afinancial analyst trying to compare the performance of twocompanies. Company A uses the double-declining-balance depreciationmethod. Company B uses the straight-line method. You have thefollowing information taken from the 12/31/13 year-end financialstatements for Company B: Income Statement Depreciation expense $6,500 Balance Sheet Assets: Plant and equipment, at cost $ 65,000Less: Accumulated depreciation (26,000 ) Net $ 39,000 You alsodetermine that all of the assets constituting the plant andequipment of Company B were acquired at the same time, and that allof the $65,000 represents depreciable assets. Also, all of thedepreciable assets have the same useful life and residual valuesare zero. Required: 1. In order to compare performance with CompanyA, estimate what B's depreciation expense would have been for 2013if the double-declining-balance depreciation method had been usedby Company B since acquisition of the depreciable assets.
2-If Company B decided to switch depreciation methods in 2013from the straight line to the double-declining-balance method,prepare the 2013 adjusting journal entry to record depreciation forthe year, assuming no journal entry for depreciation in 2013 hasbeen recorded
The fact that generally accepted accounting principles allowcompanies flexibility in choosing between certain allocationmethods can make it difficult for a financial analyst to compareperiodic performance from firm to firm. Suppose you were afinancial analyst trying to compare the performance of twocompanies. Company A uses the double-declining-balance depreciationmethod. Company B uses the straight-line method. You have thefollowing information taken from the 12/31/13 year-end financialstatements for Company B: Income Statement Depreciation expense $6,500 Balance Sheet Assets: Plant and equipment, at cost $ 65,000Less: Accumulated depreciation (26,000 ) Net $ 39,000 You alsodetermine that all of the assets constituting the plant andequipment of Company B were acquired at the same time, and that allof the $65,000 represents depreciable assets. Also, all of thedepreciable assets have the same useful life and residual valuesare zero. Required: 1. In order to compare performance with CompanyA, estimate what B's depreciation expense would have been for 2013if the double-declining-balance depreciation method had been usedby Company B since acquisition of the depreciable assets.
2-If Company B decided to switch depreciation methods in 2013from the straight line to the double-declining-balance method,prepare the 2013 adjusting journal entry to record depreciation forthe year, assuming no journal entry for depreciation in 2013 hasbeen recorded
