One Primary Reason Management May Choose a Particular Depreciation Method

question 34

Multiple Choice

One primary reason management may choose a particular depreciation method is:

• A)to save cash for the replacement of the plant asset.
• B)to avoid violation of debt covenants tied to net income.
• C)to decrease the cash flows of the company.
• D)to hide judgment errors that managers have made during the accounting period.

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Definitions:

Personal Property Security Act

Legislation that outlines the rules for creating and enforcing security interests in personal property, offering a way for creditors to secure repayment of debt.

Attachment

A legal process by which a court of law, at the request of a creditor, designates specific property owned by the debtor to be transferred to the creditor, or sold for the benefit of the creditor.

Perfection

Protection of a secured creditor’s claim, either by registering the secured obligation or by taking possession of the collateral.

Security

Collateral or asset pledged to guarantee the repayment of a loan or fulfillment of a contractual obligation.