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 $ 280,000

Less: Accumulated depreciation (56,000)

Net $ 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.

Answer rating: 100% (QA)

To estimate Company Bs depreciation expense for 2024 if the doubledecliningbalance DDB method had be... View the full answer