Week 2 DQs and Participation Questions
Week 2 Discussion Question #1
What are the differences among valuation, depreciation, amortization, and depletion? Is it appropriate to calculate depreciation using two different methods? Why? Which depreciation method provides you the highest depreciation expense in the first year? Why? Valuation refers to the asset being recorded and disclosed at current market price regardless of whether that price is above or below cost. Depreciation is the allocation of the cost of a plant asset to expense over its useful or service life in a rational and systematic manner. There are three methods that can be used for depreciation and a company must pick which method they want to use and stick with that method. Amortization is the systematic write-off of an intangible asset that has an useful life and it is classified as an operating expense in the income statement. Depletion refers to the allocation of the cost of natural resources to expense in a rational and systematic manner and is only used for natural resources. The depreciation method that provides you the highest depreciation expense in the first year is the Declining-balance method because with this method there is a decreasing annual depreciation expense over the asset’s useful life. Week 2 Discussion Question #2
Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why? What is the determining factor of whether a bond is sold at a discount, face, or premium? What is the straight-line method of amortizing discount and premium on bonds payable? Provide an explanation of the process. Bonds are a form of interest-bearing notes payable and companies issues bonds to obtain large amounts of long-term capital. Another reason that companies issues bond are that bonds have three advantages over common stock. The advantages are stockholder control is not affected, tax savings results, and the earnings per share may be higher. The...
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