Suppose a firm switches from straight-line depreciation to an accelerated depreciation methods (such as sum of the years digits depreciation) in the later years of someequipment's life. (a) Explain how this move would impact the firm's net income in the year of the switch? (b) Also explain which item(s) on the balance sheet would beimpacted in the year of the switch and why they would be impacted this way.

The objective of the question is to understand the impact on a firm's net income and balance sheet…

Answered: Suppose a firm switches from…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter9: Working Capital

Section: Chapter Questions

Problem 12Q

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ab is the net cash (selling price less selling costs) that the firm would receive if it sold the asset today, in an orderly fashion in an arm's-length transaction. It is an example of an exit value because it reflects a price that the firm would receive in a transaction in which an asset leaves the firm. a. Current Replacement Cost b. Net Realizable Value c. Fair Value d. Present Value of Future Net Cash Flows e. Acquisition cost
Following IFRS, which statement is false? Group of answer choices If the revaluation initially decreases the long-term operating asset's carrying value, the firm reports the difference between the carrying value and fair value as an unrealized loss on the income statement. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain in the revaluation surplus account. The revaluation surplus account is reported as other comprehensive income on the statement of comprehensive income. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain on the income statement, but only to the extent of previously recognized losses.
Which one of the following is violated when a firm has a policy of accelerating the recognition of depreciation expense during good years and decreasing depreciation expense during lean years? Relevance Matching Consistency Conservatism
Following IFRS, which statement is false? Group of answer choices If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain on the income statement, but only to the extent of previously recognized losses. The revaluation surplus account is reported as other comprehensive income on the statement of comprehensive income. If the revaluation initially decreases the long-term operating asset's carrying value, the firm reports the difference between the carrying value and fair value as an unrealized loss on the income statement. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain in the revaluation surplus account.
Why do companies accelerate depreciation on their tax return but often use slower depreciation rates on their financial statements? a. to avoid taxes b. to postpone taxes c. to improve earnings d. to improve long term cashflow
Which question reflects a decision regarding working capital management? Select one: a. Should the company issue new shares or borrow money? b. Should the company replace its older equipment with a new equipment in order to increase sales? c. What is the maximum amount of accounts receivable that the company should have at a particular time? d. How much should the company borrow to buy a new machine?
Following IFRS, which statement is false? Group of answer choices The revaluation surplus account is a specific account reported as an unrealized gain in the statement of comprehensive income. If a long-term operating asset's fair value decreases in subsequent accounting periods, after an earlier write-up, the firm reduces the revaluation surplus if it exists. If the revaluation initially increases the long-term operating asset's carrying value, the firm records the difference between the carrying value and the fair value (the unrealized gain) in the revaluation surplus account. The revaluation surplus account is a specific account reported in other comprehensive income (OCI) in the statement of comprehensive income.
The Payback method takes the initial investment and divides it by the accelerated depreciation per year of the investment True False In the Statement of Cash Flows, depreciation is ignored because it is a non cash expense. True False
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The most important factor to consider when determining the dividends to be declared is a. the impact of inflation on replacement costs b. any future planned use of retained earnings d. the future planned use of cash available at the date of dividend distribution e. shareholders’ expectation about the firms’ profitability

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