18.7 - Impact of Depreciation on Financial Statements
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Practice Questions
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What accounts are affected by depreciation?
💡 Hint: Think about where expenses and assets are recorded.
How does depreciation affect net profit?
💡 Hint: Consider how expenses influence profitability.
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Interactive Quizzes
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How does depreciation affect net profit?
💡 Hint: Think about how expenses affect profit.
True or False: Depreciation is only recorded in the income statement.
💡 Hint: Consider where financial impacts are shown.
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Challenge Problems
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A company has three assets valued at $15,000 each with a residual value of $3,000 and a useful life of 5 years. Calculate the annual depreciation using the straight-line method and discuss the impact on the financial statements over the asset’s life.
💡 Hint: Consider both profit reductions and balance sheet impacts over time.
If a business decides to change from a straight-line to a declining balance method for depreciation, explain how this might affect the financial reports in the first two years.
💡 Hint: Think about the differences in expense allocation over time.
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