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:

Margin of Safety

The difference between actual or budgeted sales and the break-even point, indicating how much sales can decline before the company incurs a loss.

Electronics Boutique

A former chain of retail stores that specialized in video games and electronics, now known as GameStop.

Digital Camera

A camera that captures photographs in digital format, allowing for immediate viewing, deletion, or storage.

Dollar Sales

The total value of goods or services sold, measured in dollars, within a specific period of time.