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 some equipment'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 be impacted in the year of the switch and why they would be impacted this way.

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 some equipment'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 be impacted in the year of the switch and why they would be impacted this way.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Which of the following statements is true when the straight-line method is used to compute amortization? Multiple Chaice Expense recognizes declines as the asset wears out Accumulated amortization is a constant amount during the asset's estimated useful life. Amortization expense per period is the amortizable cost divided by the number of periods in the asset's useful life. The carrying value of an asset is a constant amount during the asset's useful life. None of the other alternatives are correct
A company comparing the use of Straight Line Depreciation (SLD) and Accelerated Depreciation (DDB) in the first year subsequent to the purchase of a capital asset would find: The Fixed Asset Turnover ratio is highest using SLD. The Fixed Asset Turnover ratio is highest using DDB. No difference in the Fixed Asset Turnover ratio. The Total Asset Turnover ratio is highest using SLD.
Improvement of the production line resulting in an increase in productivity, $32,100 would be an expense in the period occured or would be capitalized and depreciated over the useful life of the asset?
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
With straight-line depreciation, the book value of the asset is reduced by the same amount each year. a. True b. False
Dividing accumulated depreciation by annual straight - line depreciation expense is best interpreted as an estimate of the: a) average life of a firm's assets. b) remaining life of a firm's assets. c) average age of a firm's assets.
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices that apply.) A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as a capital expense. B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as an operating expense. C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years. D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
A company should use a depreciation method that: Group of answer choices is randomly selected best reflects the asset’s decline in revenue-producing ability for the company. maximizes net income for the company a different method each year
Long-term assets can include investments such as the purchase of new equipment, the replacement of old machinery, the expansion of operations into new facilities, or even the expansion into new products or markets. True / False

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