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 12/31/2021 year-end financial statements for Company B: Income Statement
Depreciation expense $12,500
Balance Sheet

Assets:
Plant and equipment, at cost $125,000
Less: Accumulated depreciation (50,000)
Net $75,000

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 $125,000 represents depreciable assets. Also, all of the depreciable assets have the same useful life and residual values are zero.

Required:
a. In order to compare performance with Company A, estimate what B's depreciation expense would have been for 2021?
b. If Company B decided to switch depreciation methods in 2021 from the straight line to the double-declining-balance method, prepare the 2021 journal entry to record depreciation for the year

Due to use, wear and tear, or obsolescence, the monetary worth of an object decreases with time. Depreciation is the term used to describe this reduction.

A.Company B's depreciation expense for 2021 is $12,800  

B. Accumulated Depreciation (Dr.) $23,800

Plant and equipment (Cr.) $23,800

Solution:-

The depreciation expense of 2021 will be $12,800. The cost of plant and equipment is $125,000.

Depreciation 2018 : $125,000 * 10% = 12,500 * 2 = $25,000

2019 : $125,000 - $25000 = $100,000 * 10% * 2 = $20,000

2020: $100,000 - $20,000 = $80,000 * 10% * 2 = $16,000

2021 : $80,000 - $16,000 = 64,000 * 10% * 2 = $12,800

To know more about depreciation, refer to the link:-

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a. Company B's depreciation expense for 2021 is $12,800  

b. Accumulated Depreciation (Dr.) $23,800

Plant and equipment (Cr.) $23,800

Explanation:

The depreciation expense of 2021 will be $12,800. The cost of plant and equipment is $125,000.

Depreciation 2018 : $125,000 * 10% = 12,500 * 2 = $25,000

2019 : $125,000 - $25000 = $100,000 * 10% * 2 = $20,000

2020: $100,000 - $20,000 = $80,000 * 10% * 2 = $16,000

2021 : $80,000 - $16,000 = 64,000 * 10% * 2 = $12,800

answer; ///decision making under risk;

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