Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 9, Problem 1TIF
Revising
Hard Bodies Co. is a fitness chain that has just completed its second year of operations. At the beginning of its first fiscal year, the company purchased fitness equipment at a cost of $600,000 and estimated that the equipment would have a useful life of five years and no residual value. The company uses the
Mike Gambit, the company’s chief financial officer (CFO), has recently run financial models to predict future net income, and he expects net losses to continue at $(2,000) per year for the next three years. James Steed, the president of Hard Bodies, is concerned about these predictions, as he is under pressure from the company’s owner to return the company to Year 1 net income levels. If the company does not meet these goals, both he and Mike will likely be fired. Mike suggests that the company change the estimated useful life of the fitness equipment to 10 years and increase the equipment’s estimated residual value to $50,000. This will reduce depreciation expense and increase net income.
- 1. Evaluate the decision to change the equipment’s estimated useful life and estimated residual value to improve earnings. How does this change impact the usefulness of the company’s net income for external decision makers?
- 2. If Mike and James make the change, are they acting in an ethical manner? Explain.
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Hard Bodies Co. is a fitness chain that has just completed its second year of operations.
At the beginning of its first fiscal year, the company purchased fitness equipment at a cost
of $600,000 and estimated that the equipment would have a useful life of five years and
no residual value. The company uses the straight-line depreciation method. The company
reported net income for the first two years of operations as follows:
Net Income (Loss)
Year
$50,000
2
(2,000)
Mike Gambit, the company's chief financial officer (CFO), has recently run financial models to
predict future net income, and he expects net losses to continue at $(2,000) per year for the
next three years. James Steed, the president of Hard Bodies, is concerned about these predic-
tions, as he is under pressure from the company's owner to return the company to Year 1 net
income levels. If the company does not meet these goals, both he and Mike will likely be fired.
Mike suggests that the company change the estimated useful…
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Hard Bodies Co. is a fitness chain that has just completed its second year of operations. At the beginning of
its first fiscal year, the company purchased fitness equipment at a cost of $600,000 and estimated that the
equipment would have a useful life of five years and no residual value. The company uses the straight-line
depreciation method. The company reported net income for the first two years of operations as follows:
Net Income (Loss)
Year
brightspa
1
2
$50,000
(2,000)
Mike Gambit, the company's chief financial officer (CFO), has recently run financial models to predict
future net income, and he expects net losses to continue at $(2,000) per year for the next three years. James
Steed, the president of Hard Bodies, concerned about these predictions, as he is under pressure from the
company's owner to return the company to Year 1 net income levels. If the company does not meet these
goals, both he and Mike will likely be fired. Mike suggests that the company change the…
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Chapter 9 Solutions
Financial And Managerial Accounting
Ch. 9 - ONeil Office Supplies has a fleet of automobiles...Ch. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Prob. 4DQCh. 9 - Prob. 5DQCh. 9 - Keyser Company purchased a machine that has a...Ch. 9 - Prob. 7DQCh. 9 - A. Under what conditions is the use of an...Ch. 9 - Prob. 9DQCh. 9 - Prob. 10DQ
Ch. 9 - Straight-line depreciation A building acquired at...Ch. 9 - Units-of-activity depreciation A truck acquired at...Ch. 9 - Double-declining-balance depreciation A building...Ch. 9 - Revision of depreciation Equipment with a cost of...Ch. 9 - Capital and revenue expenditures On February 14,...Ch. 9 - Sale of equipment Equipment was acquired at the...Ch. 9 - Prob. 7BECh. 9 - Prob. 8BECh. 9 - Fixed asset turnover ratio Select financial...Ch. 9 - Costs of acquiring fixed assets Melinda Stoffers...Ch. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Nature of depreciation Tri-City Ironworks Co....Ch. 9 - Straight-line depreciation rates Convert each of...Ch. 9 - Straight-line depreciation A refrigerator used by...Ch. 9 - Depreciation by units-of-activity method A...Ch. 9 - Depreciation by units-of-activity method Prior to...Ch. 9 - Depreciation by two methods A Kubota tractor...Ch. 9 - Depreciation by two methods A storage tank...Ch. 9 - Partial-year depreciation Equipment acquired at a...Ch. 9 - Revision of depreciation A building with a cost of...Ch. 9 - Prob. 13ECh. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Capital expenditure and depreciation Willow Creek...Ch. 9 - Entries for sale of fixed asset Equipment acquired...Ch. 9 - Disposal of fixed asset Equipment acquired on...Ch. 9 - Prob. 19ECh. 9 - Kleen Company acquired patent rights on January 10...Ch. 9 - Prob. 21ECh. 9 - Prob. 22ECh. 9 - Asset traded for similar asset A printing press...Ch. 9 - Prob. 24ECh. 9 - Prob. 25ECh. 9 - Prob. 26ECh. 9 - Prob. 1PACh. 9 - Comparing three depreciation methods Dexter...Ch. 9 - Depreciation by three methods; partial years...Ch. 9 - Depreciation by two methods; sale of fixed asset...Ch. 9 - Transactions for fixed assets, including sale The...Ch. 9 - Prob. 6PACh. 9 - Prob. 1PBCh. 9 - Comparing three depreciation methods Waylander...Ch. 9 - Depreciation by three methods; partial years...Ch. 9 - Depreciation by two methods; sale of fixed asset...Ch. 9 - Transactions for fixed assets, including sale The...Ch. 9 - Prob. 6PBCh. 9 - Compare Amazon.com to Netflix Amazon.com, Inc....Ch. 9 - Prob. 2MADCh. 9 - Prob. 3MADCh. 9 - Compare Fed Ex and UPS FedEx Corporation (FDX) and...Ch. 9 - Prob. 5MADCh. 9 - Revising depreciation estimates Hard Bodies Co. is...Ch. 9 - Communication Godwin Co. owns three delivery...Ch. 9 - Prob. 4TIF
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