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 12/3i/2021 year-end financial statements for Company B: Income Statement Depreciation expense $ 5,500 Balance Sheet Assets: Plant and equipment, at cost Less: Accumulated depreciation $ 55,000 (22,000) $ 3,000 Net You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the sam time, and that all of the $55,000 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. Double-declining balance Year 1 (2018) Year 2 (2019) Year 3 (2020) Year 4 (2021) 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. Journal Entry: Record the depreciation expense for 2021?
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 12/3i/2021 year-end financial statements for Company B: Income Statement Depreciation expense $ 5,500 Balance Sheet Assets: Plant and equipment, at cost Less: Accumulated depreciation $ 55,000 (22,000) $ 3,000 Net You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the sam time, and that all of the $55,000 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. Double-declining balance Year 1 (2018) Year 2 (2019) Year 3 (2020) Year 4 (2021) 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. Journal Entry: Record the depreciation expense for 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What are the answers to Required 1 (filling in the Double-Declining
Transcribed Image Text: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
$ 5,500
Balance Sheet
Assets:
Plant and equipment, at cost
Less: Accumulated depreciation
$ 55,000
(22,000)
$ 33,000
Net
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 $55,000 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.
Double-declining balance
Year 1 (2018)
Year 2 (2019)
Year 3 (2020)
Year 4 (2021)
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.
Journal Entry: Record the depreciation expense for 2021?
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