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 12/31/2024 year-end financial statements for Company B: Income Statement Depreciation expense $ 14,000 Balance Sheet Assets: Plant and equipment, at cost Less: Accumulated depreciation Net $ 280,000 (56,000) $ 224,000 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 $280,000 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 2024 if the double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets. 2. If Company B decided to switch depreciation methods in 2024 from the straight line to the double-declining-balance method, prepare the 2024 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2024 has yet been recorded.
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 12/31/2024 year-end financial statements for Company B: Income Statement Depreciation expense $ 14,000 Balance Sheet Assets: Plant and equipment, at cost Less: Accumulated depreciation Net $ 280,000 (56,000) $ 224,000 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 $280,000 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 2024 if the double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets. 2. If Company B decided to switch depreciation methods in 2024 from the straight line to the double-declining-balance method, prepare the 2024 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2024 has yet been recorded.
Chapter9: Accounting For Receivables
Section: Chapter Questions
Problem 4TP: You are considering two possible companies for investment purposes. The following data is available...
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Required 1 Required 2
In order to compare performance with Company A, estimate what B's depreciation expense would have been for 2024 if the
double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets.
Depreciation expense for 2024
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Required 1 Required 2
If Company B decided to switch depreciation methods in 2024 from the straight line to the double-declining-balance method, prepare the
2024 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2024 has yet been recorded.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
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1
Record the depreciation expense for 2024.
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1
General Journal
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Debit
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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 12/31/2024
year-end financial statements for Company B:
Income Statement
Depreciation expense
$ 14,000
Balance Sheet
Assets:
Plant and equipment, at cost
Less: Accumulated depreciation
Net
$ 280,000
(56,000)
$ 224,000
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 $280,000 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 2024 if the
double-declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets.
2. If Company B decided to switch depreciation methods in 2024 from the straight line to the double-declining-balance method,
prepare the 2024 journal entry to record depreciation for the year, assuming no journal entry for depreciation in 2024 has yet
been recorded.
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