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Depreciation Expense Analysis
The purpose of this assignment is to analyze long-term assets in the financial statements, and to consider financial implications associated with long-term assets.
Complete Problem 10.5 from the textbook.
Use Microsoft Excel to show the calculations of depreciation prior to and after the recommended changes.
n addition, in a Microsoft Word document, write a memo from Patty Chu to Patty’s boss comparing the results of the old and new depreciation expense amounts. Within the memo, discuss the impact to the income statement and balance sheet if these changes are approved.
Finally, provide a recommendation on whether the changes should be made; use your calculations to support your position.
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Depreciation Expense Analysis
1. Analysis of Long-Term Assets in the Financial Statements
Objective:
The goal is to analyze the long-term assets in the financial statements and assess the financial implications of changes to depreciation methods.
2. Using Microsoft Excel to Show Depreciation Calculations
Steps for Excel:
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Depreciation Before Changes:
- Use the given depreciation method (e.g., straight-line, declining balance) to calculate depreciation for each year.
- Enter the necessary data (asset cost, useful life, salvage value) into Excel and apply the formula for depreciation based on the method specified in the textbook.
Example of Straight-Line Depreciation:
Depreciation Expense=Cost−Salvage ValueUseful Life\text{Depreciation Expense} = \frac{\text{Cost} – \text{Salvage Value}}{\text{Useful Life}}
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Depreciation After Changes:
- Apply the recommended changes to the depreciation method or estimates (e.g., a change in useful life, salvage value, or method).
- Recalculate depreciation for the new method or new parameters.
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Comparison:
Create a side-by-side comparison in Excel to show the depreciation expense under both methods (old and new).
3. Writing the Memo in Microsoft Word
Memo Structure:
Begin the memo with a clear heading and date, followed by the content comparing the depreciation results.
Memo from Patty Chu to Patty’s Boss:
To: [Boss’s Name]
From: Patty Chu
Date: [Date]
Subject: Comparison of Depreciation Expense Before and After Recommended Changes
Introduction:
The purpose of this memo is to compare the depreciation expense calculated prior to and after the recommended changes in the…