Reference no: EM132485714

John Brownstone works for Secretariat Inc. He and Fatima Johnson, his manager, are preparing adjusting entries for the year end financial statments. Brownstone computes depreciation and records it as

Depreciation Expense, Equipment               $150,000

Accumulated Depreciation , Equipment         $150,000

Point 1: Johnson agrees with his computation but says that the credit entry should go directly into the Equipment account. Johnson argues that while Accumulate Depreciation is technically correct, it is "less of a hassle" to not use a contra account and and to just credit the Equipment account directly. "And besides, the balance sheet will show the same balance for Equipment under either method."

Question 1: Is there an ethical issue in this case? If so, what is it?

Question 2: What are the strengths and weaknesses of Johnson's approach to recording depreciation?

Question 3: How should depreciation be recorded and why?