Jackie Bergez works for Sea Biscuit Co. She and Bob Welch, her manager, are preparing adjusting entries for annual financial statements. Bergez computes depreciation and records it as

Depreciation Expense—Equipment . . . . . . . . . . . . . . . 123,000

Accumulated Depreciation—Equipment . . . . . . . . . 123,000

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

2. Evaluate the strengths and weaknesses of Welch’s reasons for preferring his method.

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

 

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