FUNDAMENTALS OF FINANCIAL ACCOUNTING
6th Edition
ISBN: 9781260664386
Author: PHILLIPS, LIBB
Publisher: MCG
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Chapter 13, Problem 6SDC
1.
To determine
To Identify: which financial ratios that is likely to be affected by the difference in the depreciation method.
2.
To determine
To Identify: which company will report the higher amount for each ratio and to explain the reason if they not certain.
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Suppose you were a financial analyst trying to compare the performance of two companies. Company A uses the double-declining-
balance depreciation method. Company B uses the straight-line method. You have the following information taken from the 12/31/2021
year-end financial statements for Company B:
Income Statement
Depreciation expense
Balance Sheet
Assets:
Plant and equipment, at cost
Less: Accumulated depreciation
Net
You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the same time, and that
all of the $260,000 represents depreciable assets. Also, all of the depreciable assets have the same useful life and residual values are
zero.
Required:
1. In order to compare performance with Company A, estimate what B's depreciation expense would have been for 2021 if the double-
declining-balance depreciation method had been used by Company B since acquisition of the depreciable assets.
2. If Company B decided to switch depreciation…
Answer the following questions:
Required:
a-1. Find the discussion of Property, Plant, and Equipment and depreciation methods used by Campbell's. Use data from the Campbell
Soup Company annual report
O Straight-line method
O Double declining method
O Written down value method
a-2. Why the particular method is used for the purpose described.
Straight-line depreciation is used for financial reporting purposes because depreciation expense will be lower than under any
of the accelerated depreciation methods.
O Straight-line depreciation is used for financial reporting purposes because depreciation expense will be higher than under any
of the accelerated depreciation methods.
a-3. What method do you think the company uses for income tax purposes?
O Accelerated depreciation using the MACRS rates is probably used for tax purposes to minimize taxes payable.
O Straight line Method using the MACRS rates is probably used for tax purposes to minimize taxes payable.
Written down value Method using…
Which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company
uses straight-line depreciation?
O Companies omit from the income statement items they cannot measure reliably.
O Income measurement involves judgment.
O Income numbers are affected by the accounting methods employed.
All of these answer choices are correct.
Chapter 13 Solutions
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Ch. 13 - What is the general goal of trend analysis?Ch. 13 - Prob. 2QCh. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What benchmarks are commonly used for interpreting...Ch. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Slow Cellars current ratio increased from 1.2 to...Ch. 13 - From last year to this year, Colossal Companys...Ch. 13 - From last year to this year, Berry Bam reported...Ch. 13 - Explain whether the following situations, taken...
Ch. 13 - What are the two essential characteristics of...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - 1. Which of the following ratios is not used to...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Analysts use ratios to a. Compare different...Ch. 13 - Which of the following ratios incorporates stock...Ch. 13 - Prob. 6MCCh. 13 - Prob. 7MCCh. 13 - A bank is least likely to use which of the...Ch. 13 - Prob. 9MCCh. 13 - (Supplement 13A) Which of the following items is...Ch. 13 - Calculations for Horizontal Analyses Using the...Ch. 13 - Calculations for Vertical Analyses Refer to M13-1....Ch. 13 - Interpreting Horizontal Analyses Refer to the...Ch. 13 - Interpreting Vertical Analyses Refer to the...Ch. 13 - Prob. 5MECh. 13 - Prob. 6MECh. 13 - Prob. 7MECh. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Inferring Financial Information Using the Current...Ch. 13 - Prob. 10MECh. 13 - Identifying Relevant Ratios Identify the ratio...Ch. 13 - Prob. 12MECh. 13 - Analyzing the Impact of Accounting Alternatives...Ch. 13 - Describing the Effect of Accounting Decisions on...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational Formula...Ch. 13 - Computing and Interpreting Selected Liquidity...Ch. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - Prob. 6CPCh. 13 - Prob. 7CPCh. 13 - Prob. 1PACh. 13 - Prob. 2PACh. 13 - Prob. 3PACh. 13 - Prob. 4PACh. 13 - Prob. 5PACh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PACh. 13 - Prob. 1PBCh. 13 - Prob. 2PBCh. 13 - Prob. 3PBCh. 13 - Prob. 4PBCh. 13 - Prob. 5PBCh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PBCh. 13 - Prob. 1SDCCh. 13 - Prob. 2SDCCh. 13 - Prob. 5SDCCh. 13 - Prob. 6SDCCh. 13 - Prob. 7SDCCh. 13 - Prob. 1CC
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Give typing answer with explanation and conclusionarrow_forwardWhich of the following statements are true? Select one or more: a. MACRS must be used for book purposes if it is used for tax purposes. b. Managers often prefer the straight-line method because it helps to smooth earnings. c. Units of production method is not appropriate for natural resources. d. Double-declining balance recognizes more depreciation expense early in an asset's life. PreviousSave AnswersNextarrow_forwardi need the answer quicklyarrow_forward
- In relation to evaluating non-current assets, indicate which of the following statements is TRUE? 1. The higher the asset turnover, the more effective a company is in using its resources to generate sales. 2. Too high a depreciation rate will result in increased reported profits for the period. 3. All non-current assets must be depreciated. 4. The older the assets are, the better the company is performing.arrow_forwardA 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 yeararrow_forwardA company wishes to report the highest earnings possibleaccording to GAAP. Therefore, when calculating depreciation for financial reporting purposes,a. It will follow the MACRS depreciation rates prescribedby the IRS.b. It will estimate the shortest lives possible for itsassets.c. It will estimate the longest lives possible for its assets.d. It will estimate lower residual values for its assets.arrow_forward
- Place T or F in front of each of the following statements. 1. The straight-line method of depreciation is based on the assumption that depreciation expense can be regarded as a constant function of time. 2. Plant assets should be written down (below cost) when their market value has declined temporarily. 3. The accounting profession has developed specifically recommended procedures for recording appraisal increases with respect to plant assets. 4. An asset's cost minus its accumulated depreciation equals its book value. 5. The sum-of-the-years'-digits method of depreciation ignores salvage value in the computation of an asset's depreciable base. 6. When using the double-declining balance method of determining depreciation, a declining percentage is applied to a constant book value. 7. The book value of plant assets initially declines more rapidly under decreasing-charge methods than under the straight-line method. 8. Accounting depreciation is computed by…arrow_forwardDepreciation, Depletion, and Amortization: The Matching Concept. Depreciation, depletion, and amortization are allocation processes that distribute the acquisition cost of an asset to the many periods of the asset’s expected useful life. Discuss how these processes reflect the matching principle and why they are important to the measurement of corporate profitabilityarrow_forwardreview the picture below and correct any lines that involve formulas and add any lines that arent highlighted that need formulas by adding forumlas where they are neededarrow_forward
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