2. In 2016 The Stringer Co. will recognize an impairment loss on certain obsolete assets. The loss will be reported as other income and will reduce the carrying amount of the assets on the balance sheet. What will be the most likely effect of the impairment loss?

		Net income in years prior to 2016 was likely understated
		None of these is true
		Cash flow from operating activities in 2016 will likely be lower because of the impairment loss
		Net profit margin in years after 2016 will likely exceed the net profit margin in 2016
		All of these are true

Gibbs Inc. just bought a new asset for $20,000. The asset has an expected useful life of 8 years and an expected salvage value of $2,000. Assume that the company uses MACRS depreciation (see below) for the first four years and then switches to straight line depreciation. How much will annual depreciation expense be under the straight line method? Year 1 2 3 4 5 6 7 8 $1,560 MACRS % 14.3 24.5 17.5 12.5 8.9 8.9 8.9 4.5 $1,620 $1,200 $1,060 $560