Evaluate the strengths and weaknesses of Smith’s reasons for preferring her method.

BOOK: Fundamental Accounting Principles John Wild

In this module, you are shown how accrual accounting improves financial statements and the types of adjusting entries that need to be made and their purpose This discussion board gives you an opportunity to consider what roll adjusting entries play in this process.
This assignment fulfills:
Module Objective 1: You will have discussed accrual accounting and how it improves financial statements.
Module Objective 2: You will have discussed the types of adjustments and their purpose.
Course Objective 2: Identified financial information and its role in the decision-making process.
THE PROMPT
Respond to the following question in the discussion forum for this module located in the DISCUSSION BOARD menu item.

Jessica Boland works for Sea Biscuit Co. She and Farah Smith, her manager, are preparing adjusting entries for annual financial statements. Boland computes depreciation and records it as:

Depreciation Expense – Equip. . . . . . 123,000

Accumulated Depreciation – Equip. 123,000

Smith agrees with her computation but says the credit entry should be directly to the Equipment account. Smith 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 Boland or Smith?

2. Evaluate the strengths and weaknesses of Smith’s reasons for preferring her method.

3. Indicate whether the situation Boland faces is an ethical problem. Explain.

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