Part 1 is write a discussion about Jerome Boland works for Sea Biscuit Company. He and Virginia Klotz, his manager, are preparing adjusting entries for annual financial statements. Jerome Boland computes depreciation and records it as follows:
Depreciation Expense-Equipment . . . . . . . . 123,000
Accumulated Depreciation-Equipment . . . . . . . . . . 123,000
Virginia Klotz agrees with his computation but says the credit entry should be directly to the Equipment account.
Virginia Klotz states the following:
"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."
Discuss in depth what Virginia Klotz wants to do (i.e. your thoughts on her view? how should Jerome respond? etc. etc. etc.)
Part 2 write a response about
Although Virginia Klotz is Jerome's manager, and "technically" more experienced and possibly more educated about their task, she does not seem to understand the importance of properly recording all transactions. Though adjustments in their proper, separate accounts are definitely more complicated and a hassle than simply subtracting it from the same account, it is absolutely necessary to make sure the accounting period reflects all transactions. In our textbook, it clearly states that adjustments make sure that revenues, expenses, assets and liabilities are correctly reported as it affects both the balance sheet and income statement. So if Jerome were to follow Virginia's method of only applying the depreciation in the same depreciation expense account, they would not be properly reporting their expense because there would not be an Accumulated Depreciation-Equipment account to reflect the changes. Though this scenario doesn't expand on the situation, I'm unsure how Virginia would balance the accounting equation at all if she insists on using one account because there would not be another account they can debit from aside from the Accumulated Depreciation-Equipment account. Furthermore, and most importantly, they would understate expenses by the full amount of $123,000 and conversely overstating net income by $123,00 by the year's end, which would overstate both assets and equity due to income by a whopping $123,000 in the year-end balance sheet. For all businesses, it is vitally important to have an accurate balance sheet so that readers may know the full costs of assets and the total depreciation.
Keeping all of this in mind, I would be in a very difficult position if I were in Jerome's shoes. This may go beyond making sure everything is "technically" correct and may cast Jerome in an unfavorable light at his company and especially with Virginia if she was a manager that was not very gracious in accepting corrections from an employee working under her. Hopefully Jerome has some recourse with someone in a higher position than Virginia, and he can maintain his professional relationships while making sure he is fulfilling his duty on properly reporting all changes within the company. One can only hope Virginia learns from her mistakes and sees Jerome in a favorable light after.