30 Minutes, Medium
a.
PROBLEM 9.7B
HAYWOOD, INC.
Depreciation expense for the first two years under the three depreciation methods is
determined as follows:
Straight-line:
30 Minutes, Medium
PROBLEM 9.8B
RODGERS COMPAN
Y
20 Minutes, Strong
a.
b.
SOLUTIONS TO CRITICAL THINKING CASE
S
ARE USEFUL LIVES “FLEXIBLE”?
CASE 9.1
A
N ETHICS CAS
E
Lengthening the period over which assets are depreciated for financial statement purposes
will reduce the annual charges to depreciation expense. This will reduce expenses in the
Management is responsible for establishing the estimated useful lives of assets for purposes
of calculating depreciation and preparing financial statements. Those lives must be
consistent with the actual expected use of the assets. To arbitrarily lengthen the estimated
20 Minutes, Easy
a.
b.
c. (1)
d.
CASE 9.3
Accelerated depreciation methods transfer the costs of plant assets to expense more quickly
than does the straight-line method. These larger charges to depreciation expense reduce the
The depreciation methods used in financial statements are determined by management, not
by income tax laws.
No—different depreciation methods may be used for different assets. The principle of
20 years (a 5% straight-line depreciation rate is equivalent to writing off 1/20 of the
asset’s cost each year, indicating a useful life of 20 years).
DEPRECIATION POLICIES IN ANNUAL REPORT
S
15 Minutes, Medium
a.
b.
1.
2.
3.
There are a number of steps that you might take, including the following:
Meet with employees periodically to remind them of company policy, including the
code of professional conduct.
Work with your superiors to develop more specific policies, with examples,
regarding the capitalization and expensing of certain costs. While you will
CASE 9.
4
CAPITALIZATION VS. EXPENS
E
Employees, including yourself, may be applying the generally stated policies in a manner
that improves the appearance of your division’s performance. They (and you) may not
even realize this is being done, or it may be intentional. A consistent pattern of
Develop more specific materiality guidelines for applying capitalization and
expense rules. For example, many companies establish a specific dollar amount and
ETHICS, FRAUD & CORPORATE GOVERNANC
E
No time estimate
R & D EXPENDITURES
CASE 9.5
A keyword search of Pharmaceutical Companies will result in an extensive list of firms. The list
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