When Burlington Northern released first quarter earnings below those of the same period for the prior year, management explained the reasons behind the shortfall. While revenues increased, mainly due to higher prices, earnings were down due to increased expenses, including a charge for the write-off of an outdated technology system.
a. Describe how the write-off of a technology system would affect the basic accounting equation and the financial statements.
b. What factors could lead to a company determining that its technology was overvalued?
c. Discuss how management might be able to manage earnings through such a write-off.