Reference no: EM132568592

Question - Jerome Boland works for Sea Biscuit Co. He and Farah Smith, his manager, are preparing adjusting entries for annual financial statements. Boland computes depreciation and records it as: Depreciation Expense-Equipment 123000, Accumulated Depreciation-Equipment 123000.

Smith agrees with his computation but says the credit entry should be directly to the Equipment account. She argues that while accumulated depreciation is technically correct, "it is less complex not to use a contra account and just credit the Equipment account directly. And besides, the balance sheet shows the same account 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.