Reading 37: Long-lived Assets-LOS c 习题精选 equipment, different, statements, concerning, 2011

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 37: Long-lived Assets

LOS c: Discuss the different depreciation methods for property, plant, and equipment, and the effect of the choice of depreciation method on the financial statements, and the assumptions concerning useful life, and residual value on depreciation expense.

 

 

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 increase the total amount of depreciation expense over the life of an asset.

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

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) total assets on the balance sheet.

B) net income/sales ratio.

C) fixed asset turnover 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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Lakeside Co. recently determined that one of its processing machines has become obsolete three years early and, unexpectedly, has no salvage value. Which of the following statements is most consistent with this discovery?

A) Historically, economic depreciation was overstated.

B) Historically, economic depreciation was understated.

C) Lakeside Co. will owe back taxes.

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Historically, economic depreciation was understated. If an asset becomes obsolete and its useful life is less than expected, accounting methods for depreciation have understated the economic depreciation. In addition, if there is no salvage value when positive salvage value was expected, the understatement problem is compounded.