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Depreciation Expense and Accumulated Depreciation

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Jackie Bergez works for Sea Biscuit Co. She and Bob Welch, her manager, are preparing adjusting entries for annual financial statements. Bergez computes depreciation and records it as:

Depreciation Expense: Equipment . . . . . . . . . . . . . . . 123,000
Accumulated Depreciation: Equipment . . . . . . . . . 123,000

Welch agrees with her computation but says the credit entry should be directly to the Equipment account. Welch argues that while accumulated depreciation is technically correct, "it is less hassle not to use a contra account and just credit the Equipment account directly. And besides, the balance sheet shows the same amount for total assets under either method."

Required
1. How should depreciation be recorded? Do you support Bergez or Welch?
2. Evaluate the strengths and weaknesses of Welch's reasons for preferring his method.
3. Indicate whether the situation Bergez faces is an ethical problem. Explain.

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Solution Summary

The answer to this problem explains Berger's method of depriciation . The references related to the answer are also included.

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1. How should depreciation be recorded? Do you support Bergez or Welch?
Depreciation should be recorded according to Berger's method. The account to be credited is not the asset account equipment but should be entered in the contra asset account namely accumulated depreciation account which is a contra asset account.

2. Evaluate the strengths and weaknesses of Welch's reasons for preferring his method.
The strength of Welch?s argument is ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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