Reference no: EM132651222

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

Depreciation Expense, Equipment 150,000

Accumulated Depreciation, Equipment 150,000

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."

Required -

1. Is there an ethical issue in this case? If so, what is it? (Support your answer)

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

3. How should depreciation be recorded and why?