Reading 37: Long-Lived Assets LOS d习题精选 2010, face, statements, different, following

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LOS d: Identify the different depreciation methods for long-lived tangible assets, and discuss how the choice of method, useful lives, and salvage values affect a company's financial statements, ratios, and taxes.

Which of the following statements about depreciation is least accurate?

A) Return on assets is initially higher using straight-line depreciation than it is using accelerated depreciation.

B) For a firm with increasing capital expenditures, accelerated depreciation methods tend to increase both net income and stockholders' equity when compared to straight-line depreciation.

C) If an asset produces a constant stream of net income over its useful life and is depreciated using the straight-line method, the rate of return on the asset increases over its life.

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For a firm with increasing capital expenditures, accelerated depreciation methods tend to decrease both net income and stockholders' equity when compared to straight-line depreciation.

Assuming the firm continues to invest in new assets, the following relationships hold. These relationships will eventually reverse if the firm's capital expenditures decline.

	Straight Line	Accelerated (DDB & SDY)
Depreciation Expense	Lower	Higher
Net Income	Higher	Lower
Assets	Higher	Lower
Equity	Higher	Lower
Return on Assets	Higher	Lower
Return on Equity	Higher	Lower

 

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Roger Margotta, the CFO of Brainchild, Inc., is considering several alternative methods of depreciation for long-term assets. With respect to double-declining method of depreciation, which of the following statements is the most accurate?

A) Current ratio will increase over the life of the asset.

B) Return on Investment will increase over the life of the asset.

C) Asset turnover ratio will decrease over the life of the asset.

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With the use of any accelerated method of depreciation, the deductions in assets and net income are greatest in the early years. For DDB, the greatest impact is year 1. After year 1, net income will increase, increasing ROI.

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Which of the following statements comparing straight-line depreciation methods to alternative depreciation methods is least accurate? Companies that use:

A) accelerated depreciation methods will decrease the amount of taxes in early years.

B) accelerated depreciation methods will increase the total amount of depreciation expense over the life of an asset.

C) the units-of-production method to depreciate assets will overstate income during periods of low production.

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Accelerated depreciation methods will not change the total amount of depreciation expense over the life of an asset. Accelerated depreciation methods will increase the amount of depreciation expense in the early years of the asset’s life, but the depreciation expense will be less in the latter years of the asset’s life.

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A company is switching from straight-line depreciation to an accelerated method of depreciation. Assuming all other revenue and expenses are at the same levels for the next period, switching to an accelerated method will most likely increase the company’s:

A) fixed asset turnover ratio.

B) total assets on the balance sheet.

C) net income/sales ratio.

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The use of an accelerated depreciation method will increase depreciation expenses early in the asset’s life. The book value of the asset will be lower. Fixed asset turnover ratio (sales/fixed assets) will increase, because the book value of the fixed assets will be lower.

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