Question: Linda is now considering which depreciation method or methods would be appropriate. She has narrowed the choices down for the building to the straight-line or
Linda is now considering which depreciation method or methods would be appropriate. She has narrowed the choices down for the building to the straight-line or double-declining-balance method, and for the equipment to the straight-line, double-declining-balance, or activity method. She has requested your advice and recommendation. In discussions with her, the following concerns were raised: The company acquires goods from suppliers with terms of 2/10, n/30. The suppliers have indicated that these terms will continue as long as the current ratio does not fall below 2 to 1. If the ratio falls lower, no purchase discounts will be given. The bank will continue the loan from year to year as long as the ratio of long-term debt to total assets does not exceed 46%. Linda has contracted with the company's manager to pay him a bonus equal to 50% of any net income in excess of $14,000. She prefers to minimize or pay no bonus as long as conditions of agreements with suppliers and the bank can be met. To provide a strong signal to attract potential investors to join her in the company, Linda believes that a rate of return on total assets of at least 5% must be achieved
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