**P8-4 (Algo) Inferring Depreciation Amounts and Determining the Effects of a Depreciation Error on Key Ratios LO8-1, 8-3** *[The following information applies to the questions displayed below.]* Fausett Electronics, Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores across the globe. The following was reported in a recent annual report: **CONSOLIDATED BALANCE SHEETS** *($ in millions)* | Asset | Current Year | Prior Year | |------------------------------|--------------|------------| | Property and Equipment | | | | - Land and buildings | $762 | $715 | | - Leasehold improvements | 2,018 | 1,744 | | - Fixtures and equipment | 4,067 | 3,044 | | - Property under capital leases | 123 | 61 | | | 6,970 | 5,564 | | Less accumulated depreciation| 2,784 | 2,300 | | Net property and equipment | 4,186 | 3,264 | **P8-4 Part 2** 2. Assume that Fausett Electronics failed to record depreciation during the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios: *(Select "NE" if there is no effect.)* a. Earnings per share. _________ b. Fixed asset turnover. _________ c. Current ratio. _________ d. Return on assets. _________ This section is designed to help students analyze the implications of not recording depreciation, by understanding its impact on various financial ratios.
**P8-4 (Algo) Inferring Depreciation Amounts and Determining the Effects of a Depreciation Error on Key Ratios LO8-1, 8-3** *[The following information applies to the questions displayed below.]* Fausett Electronics, Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores across the globe. The following was reported in a recent annual report: **CONSOLIDATED BALANCE SHEETS** *($ in millions)* | Asset | Current Year | Prior Year | |------------------------------|--------------|------------| | Property and Equipment | | | | - Land and buildings | $762 | $715 | | - Leasehold improvements | 2,018 | 1,744 | | - Fixtures and equipment | 4,067 | 3,044 | | - Property under capital leases | 123 | 61 | | | 6,970 | 5,564 | | Less accumulated depreciation| 2,784 | 2,300 | | Net property and equipment | 4,186 | 3,264 | **P8-4 Part 2** 2. Assume that Fausett Electronics failed to record depreciation during the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios: *(Select "NE" if there is no effect.)* a. Earnings per share. _________ b. Fixed asset turnover. _________ c. Current ratio. _________ d. Return on assets. _________ This section is designed to help students analyze the implications of not recording depreciation, by understanding its impact on various financial ratios.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![**P8-4 (Algo) Inferring Depreciation Amounts and Determining the Effects of a Depreciation Error on Key Ratios LO8-1, 8-3**
*[The following information applies to the questions displayed below.]*
Fausett Electronics, Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores across the globe. The following was reported in a recent annual report:
**CONSOLIDATED BALANCE SHEETS**
*($ in millions)*
| Asset | Current Year | Prior Year |
|------------------------------|--------------|------------|
| Property and Equipment | | |
| - Land and buildings | $762 | $715 |
| - Leasehold improvements | 2,018 | 1,744 |
| - Fixtures and equipment | 4,067 | 3,044 |
| - Property under capital leases | 123 | 61 |
| | 6,970 | 5,564 |
| Less accumulated depreciation| 2,784 | 2,300 |
| Net property and equipment | 4,186 | 3,264 |
**P8-4 Part 2**
2. Assume that Fausett Electronics failed to record depreciation during the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios: *(Select "NE" if there is no effect.)*
a. Earnings per share. _________
b. Fixed asset turnover. _________
c. Current ratio. _________
d. Return on assets. _________
This section is designed to help students analyze the implications of not recording depreciation, by understanding its impact on various financial ratios.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81f3c13b-c916-4610-ab84-ceb3c5d340e8%2F01e661c2-c8b8-4bc3-8424-f27f69cc4324%2Fa7n7wa8.jpeg&w=3840&q=75)
Transcribed Image Text:**P8-4 (Algo) Inferring Depreciation Amounts and Determining the Effects of a Depreciation Error on Key Ratios LO8-1, 8-3**
*[The following information applies to the questions displayed below.]*
Fausett Electronics, Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores across the globe. The following was reported in a recent annual report:
**CONSOLIDATED BALANCE SHEETS**
*($ in millions)*
| Asset | Current Year | Prior Year |
|------------------------------|--------------|------------|
| Property and Equipment | | |
| - Land and buildings | $762 | $715 |
| - Leasehold improvements | 2,018 | 1,744 |
| - Fixtures and equipment | 4,067 | 3,044 |
| - Property under capital leases | 123 | 61 |
| | 6,970 | 5,564 |
| Less accumulated depreciation| 2,784 | 2,300 |
| Net property and equipment | 4,186 | 3,264 |
**P8-4 Part 2**
2. Assume that Fausett Electronics failed to record depreciation during the current year. Indicate the effect of the error (i.e., overstated or understated) on the following ratios: *(Select "NE" if there is no effect.)*
a. Earnings per share. _________
b. Fixed asset turnover. _________
c. Current ratio. _________
d. Return on assets. _________
This section is designed to help students analyze the implications of not recording depreciation, by understanding its impact on various financial ratios.
Expert Solution
Step 1
a)
Earnings per share is calculated by dividing net income by number of shares, hence if the depreciation is not recorded then net income will increase and as a result , Earnings per share also increases.
Answer: Overstated
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