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1RUNNING HEAD: Adjusting Entries & CommunicationMilestone Three: Adjusting Entries & CommunicationNicole Stevens29 September 2019ACC-610 Financial ReportingProfessor Christina Ward, CPA, MSASouthern New Hampshire University
2Adjusting Entries & CommunicationAdjusting Entries: Depreciation MethodTarget uses the straight-line depreciation method when it comes to financial reportingpurposes. This is a “depreciation method which allocates a proportionate amount as an expenseto each period” (Whalen, 2017). To calculate a company’s straight-line depreciation, one wouldtake the cost minus the estimated residual value divided by the estimated service life. Thismethod is the most widely used depreciation method which approximately 98 percent of publicUS companies and 97 percent of international companies using it for a portion of property, plant,and equipment due to its simplicity. On the contrary, when it comes to tax purposes, Target usesaccelerated depreciation methods. One of these methods is the sum-of-the-years’-digits methodwhich is a method that recognizes a declining depreciation expense each period by applying adecreasing fraction each year to the depreciable base of the asset (Whalen, 2017). To calculatethis, you would divide the number of years remaining in the asset’s life as of the beginning of theyear divided by the sum of the years of the asset’s service life. The declining-balance methodsare also forms of accelerated depreciation methods. These methods recognize a decliningdepreciation expense amount each period by applying a constant rate to the book value of theasset at the beginning of each period. The declining-balance rate is a multiple of the straight-linerate, which is often a multiple of 2 where it’s called the double-declining balance method. Targetutilizes these different methods to help benefit them in multiple ways. Target benefits by usingthe straight-line method for financial reporting due to the fact that is creates a lower depreciationexpense over the years. However, the benefit of using an accelerated method for income tax isthe fact that Target is able to be more aggressive on their depreciation expense which in turn willlower net income and causes less income tax for the company to pay.
3Adjusting Entries & CommunicationAdjusting Entries: Adjusting EntryAn adjusting entry is an “entry in a journal to accounts that are not up to date at the end

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Term
Winter
Professor
DL
Tags
Depreciation, Generally Accepted Accounting Principles

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