Chapter 7, Problem 5AP

1.

To determine

Explain whether the estimates made by the management affect the amount of depreciation in the financial statement of the company.

2.

To determine

Whether management should (a) choose straight-line or double-declining balance, (b) estimate a longer or shorter service life, and (c) estimate a higher or lower residual value, to increase earnings in the initial years following the purchase of a depreciable asset. Explain the options.

3.

To determine

Explain whether the decision of investors and creditors are affected by accounting estimates.

4.

To determine

Explain whether a company can alter depreciation estimates for the sole purpose of meeting expectations of Wall Street analysts.