Financial Accounting: In an Economic Context

BRIEF EXERCISES

REAL DATA

BE9-1

Change in depreciation method

A footnote to the financial statements of Allegheny Teledyne Incorporated stated the following:

The straight-line method of depreciation was adopted for all property placed into service after July 1, 1996. Buildings and equipment acquired prior to that time are accounted for under accelerated methods. The company believes that the new method will more appropriately reflect its financial results by better allocating costs of new property over the useful lives of these assets. In addition, the new method conforms more closely to that prevalent in the industries in which Allegheny operates.

a. What impact will the new method have on Allegheny's net income?

b. Briefly discuss some of the reasons that may have caused Allegheny to change the method of depreciation.

c. Where else in the annual report could one find evidence that Allegheny changed its method of depreciation?

REAL DATA

BE9-2

Depreciation and amortization

The Boeing Company reported in its 2008 annual report $1,325 million in depreciation expense and $117 million in amortization expense for the year ending December 31, 2008.

a. Describe how the recognition of depreciation and amortization affects the basic accounting equation.

b. As reported in the footnotes, Boeing's accumulated depreciation balance grew during the year from $12,280 million to $12,795 million. The historic cost of property, plant, and equipment was $21,579 and $21,042 in 2008 and 2007, respectively. ...