Reading 37: Analysis of Long-Lived Assets: Part II - Analys

答案和详解如下：

16.A company purchases a truck with a useful life of 5 years. The cost was $100,000 with an estimated salvage value of $10,000. Using the double declining balance method and the sum of the years' digits method, what is the depreciation in year 2?

       Double-Declining    Sum of Years' Digits

A)               $40,000       $24,000

B)               $24,000       $45,000

C)               $24,000       $24,000

D)               $40,000       $45,000

The correct answer was C)

Double-Declining Balance

depreciation in year 1 = (2/5)(100,000) = $40,000

Book value at the beginning of year 2 = $100,000 - 40,000 = $60,000

depreciation in year 2 = (2/5)(60,000) = $24,000

Sum of the Years' Digits

depreciation in year 1 = [($100,000 - $10,000) × (5 - 1 + 1)] / 15 = $30,000

depreciation in year 2 = [($100,000 - $10,000) × (5 - 2 + 1)] / 15 = $24,000

17.Trayfield has recently hired a new accountant, Judy Roehk. Upon reviewing Trayfield’s financial statements, Roehk has determined that Trayfield should be utilizing the double-declining balance (DDB) depreciation method rather than straight-line method. If Trayfield switches to the DDB method, which of the following results would be least likely?

A)   Estimated future income will need to be revised.

B)   A gradual change in income.

C)   Depreciation expense increases.

D)   Return on Equity (ROE) decreases.

The correct answer was B)

If Trayfield had decided to switch depreciation methods for new assets only, the effect on income would be relatively gradual. However, switching all assets will have a much larger effect. Trayfield would have needed to adjust estimates for future income regardless of whether the DDB method was applied only to new assets or existing assets as well. A switch to DDB will cause an increase in depreciation expense, a decrease in net income, and a decrease in the ROE and ROA ratios.