New depreciation rule affect profit margin of her business

Assignment Help Financial Accounting

Reference no: EM131268018

Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Choi’s banker requires her to submit semiannual financial statements so he can monitor the financial health of her business. He has warned her that if profit margins erode, he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank’s point of view. Choi knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following month. (The previous rule assumed assets are in use on the first day of the month nearest to the purchase date.)

Required

Identify decisions that managers like Choi must make in applying depreciation methods.

Is Choi’s rule an ethical violation, or is it a legitimate decision in computing depreciation?

How will Choi’s new depreciation rule affect the profit margin of her business?

Reference no: EM131268018

Questions Cloud

Antitrust laws : Prepare a research paper in APA format that demonstrates your analysis of the international legal issues that are involved in both examples.

Brief memorandum that responds to the owners concerns : You are the financial officer for Music Plus, a retailer that sells goods for home entertainment needs. The business owner, Jamie Madsen, recently reviewed the annual financial statements you prepared and sent you an e-mail stating that he thinks you..

What effect does lowering the estimate for doubtful accounts : Kelly Steinman is the manager of a medium-size company. A few years ago, Steinman persuaded the owner to base a part of her compensation on the net income the company earns each year. What effect does lowering the estimate for doubtful accounts have ..

Does warranty accrual decision create any ethical dilemma : Connor Bly is a sales manager for an automobile dealership. He earns a bonus each year based on revenue from the number of autos sold in the year less related warranty expenses. Does the warranty accrual decision create any ethical dilemma for Bly?

New depreciation rule affect profit margin of her business : Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Identify decisions that manag..

What are some procedures to detect this type of fraud : Carol Benton, Sue Knox, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Would a bank rec..

Retail sports store carrying golf apparel and equipment : Golf Mart is a retail sports store carrying golf apparel and equipment. The store is at the end of its second year of operation and is struggling. A major problem is that its cost of inventory has continually increased in the past two years. How does..

Income statement beginning with pretax income : On December 31, 2016, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $12 million. The business segment qualifies as a component of the entity according to GAAP. Prepare the lower port..

Sharing agreement with rey retaining four-fifths interest : At the start of 2014, Santana Rey is considering adding a partner to her business. She envisions the new partner taking the lead in generating sales of both services and merchandise for Business Solutions. Prepare the January 1, 2014, journal entries..

User Account

All Pages