Hattiesburg Manufacturing purchased a new computer-integrated system to manufacture a group of fabricated metal and plastic products.
Question:
Before considering depreciation expense for the new equipment, Hattiesburg Manufacturing has net income in the amount of $250,000. Hattiesburg uses the straight-line method of depreciation.
Required:
1. Compute a full year's depreciation expense for the new equipment, using each of the two sets of estimates.
2. Ignoring income taxes, what will be the effect on net income of including a full year's depreciation expense based on the engineering estimates? Based on the production estimates?
3. If a business has a significant investment in depreciable assets, the expected life and residual value estimates can materially affect depreciation expense and therefore net income. What might motivate management to use the highest or lowest estimates?
How would cash outflows for income taxes be affected by theestimates?
Step by Step Answer:
Cornerstones of Financial and Managerial Accounting
ISBN: 978-0324787351
1st Edition
Authors: Rich Jones, Mowen, Hansen, Heitger