Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 9, Problem 9.2CP
Financial vs. tax
The following is an excerpt from a conversation between two employees of WXT Technologies, Nolan Sears and Stacy Mays. Nolan is the accounts payable clerk, and Stacy is the cashier.
Nolan: Stacy, could I get your opinion on something?
Stacy. Sure, Nolan.
Nolan: Do you know Rita, the fixed assets clerk?
Stacy. I know who she is, but I don't know her real well Why?
Nolan: Well I was talking to her at lunch last Monday about how she liked her job, etc You know, the usual... and she mentioned something about having to keep two sets of books... one for taxes and one for the financial statements. That can be good accounting, can it? What do you think?
Stacy: Two sets of books? It doesn't sound right.
Nolan: It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What can be the difference between the two?
How would you respond to Nolan and Stacy if you were Rita?
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The following is an excerpt from a conversation between two employees of WXT Technologies, Nolan Sears and Stacy Mays. Nolan is the accounts payable clerk, and Stacy is the cashier.
Nolan:
Stacy, could I get your opinion on something?
Stacy:
Sure, Nolan.
Nolan:
Do you know Rita, the fixed assets clerk?
Stacy:
I know who she is, but I don't know her real well. Why?
Nolan:
Well, I was talking to her at lunch last Monday about how she liked her job. You know, the usual; and she mentioned something about having to keep two sets of books—one for taxes and one for the financial statements. That can't be good accounting, can it? What do you think?
Stacy:
Two sets of books? It doesn't sound right.
Nolan:
It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What can be the difference between the two?
How would you respond to Nolan and Stacy if you were Rita?
At a recent luncheon, you were seated next to Mr. Fogle, the president of a local company that manufactures food processors. He heard that you were in a financial accounting class and asked:“Why is it that I’m forced to record depreciation expense on my property when I could sell it for more than I originally paid? I thought that the purpose of the balance sheet is to reflect the value of my business and that the purpose of the income statement is to report the net change in value or wealth of a company. It just doesn’t make sense to penalize my profits when the building hasn’t lost any value.”At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices.Required:Prepare a memo to Mr. Fogle. Explain the accounting concept of depreciation and contrast this with the dictionary definition of depreciation.
At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you: Why is it that I am forced to recognize depreciation expense in my company’s income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the balance sheet was to reflect the value of my business and that the purpose of the income statement was to report the net change in value or wealth of a company. It just doesn’t make sense to penalize my profits when there hasn’t been any loss in value from using the assets. At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices. Required: Prepare a letter to Mr. Hopkins. Explain the accounting concept of depreciation and include a brief example in your explanation showing that over the life of the asset the change in…
Chapter 9 Solutions
Financial & Managerial Accounting
Ch. 9 - ONeil Office Supplies has a fleet of automobiles...Ch. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Distinguish between the accounting for capital...Ch. 9 - Immediately after a used truck is acquired, a new...Ch. 9 - Keyser Company purchased a machine that has a...Ch. 9 - Is it necessary for a business to use the same...Ch. 9 - a. Under what conditions is the use of an...Ch. 9 - For some of the fixed assets of a business, the...Ch. 9 - A. Over what period of time should the cost of a...
Ch. 9 - Capital and revenue expenditures On August 7,...Ch. 9 - Capital and revenue expenditures On February 14,...Ch. 9 - Prob. 9.2APECh. 9 - Straight-line depreciation A building acquired at...Ch. 9 - Prob. 9.3APECh. 9 - Units-of-activity depreciation A truck acquired at...Ch. 9 - Double declining-balance depreciation Equipment...Ch. 9 - Double-declining-balance depreciation A building...Ch. 9 - Prob. 9.5APECh. 9 - Revision of depreciation Equipment with a cost of...Ch. 9 - Sale of equipment Equipment was acquired at the...Ch. 9 - Sale of equipment Equipment was acquired at the...Ch. 9 - Prob. 9.7APECh. 9 - Prob. 9.7BPECh. 9 - Prob. 9.8APECh. 9 - Prob. 9.8BPECh. 9 - Fixed asset turnover ratio Financial statement...Ch. 9 - Prob. 9.9BPECh. 9 - Costs of acquiring fixed assets Melinda Staffers...Ch. 9 - Prob. 9.2EXCh. 9 - Prob. 9.3EXCh. 9 - Prob. 9.4EXCh. 9 - Capital and revenue expenditures Jackie Fox owns...Ch. 9 - Capital and revenue expenditures Quality Move...Ch. 9 - Nature of depreciation Tri-City Ironworks Co....Ch. 9 - Straight-line depreciation rates Convert each of...Ch. 9 - Prob. 9.9EXCh. 9 - Prob. 9.10EXCh. 9 - Depreciation by units-of-output method Prior to...Ch. 9 - Prob. 9.12EXCh. 9 - Depreciation by two methods A storage tank...Ch. 9 - Prob. 9.14EXCh. 9 - Revision of depreciation A building with a cost of...Ch. 9 - Prob. 9.16EXCh. 9 - Entries for sale of fixed asset Equipment acquired...Ch. 9 - Prob. 9.18EXCh. 9 - Prob. 9.19EXCh. 9 - Prob. 9.20EXCh. 9 - Prob. 9.21EXCh. 9 - Balance sheet presentation List the errors you...Ch. 9 - Prob. 9.23EXCh. 9 - Prob. 9.24EXCh. 9 - Asset traded for similar asset A printing press...Ch. 9 - Prob. 9.26EXCh. 9 - Prob. 9.27EXCh. 9 - Entries for trade of fixed asset On October 1,...Ch. 9 - Prob. 9.1APRCh. 9 - Prob. 9.2APRCh. 9 - Depreciation by three methods; partial years...Ch. 9 - Prob. 9.4APRCh. 9 - Transactions for fixed assets, including sale The...Ch. 9 - Amortization and depletion entries Data related to...Ch. 9 - Allocating payments and receipts to fixed asset...Ch. 9 - Prob. 9.2BPRCh. 9 - Prob. 9.3BPRCh. 9 - Prob. 9.4BPRCh. 9 - Transactions for fixed assets, including sale The...Ch. 9 - Amortization and depletion entries Data related to...Ch. 9 - Ethics and professional conduct in business Dave...Ch. 9 - Financial vs. tax depreciation The following is an...Ch. 9 - Effect of depreciation on net income Tuttle...Ch. 9 - Fixed asset turnover: three industries The...
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