What Effect Does Depreciating a Long-Term Asset Have on the Financial

question 156

Multiple Choice

What effect does depreciating a long-term asset have on the financial statements?

• A)Depreciation causes a decrease in net income on the income statement and a decrease in total assets on the balance sheet.
• B)Depreciation is reported as an operating activity cash outflow.
• C)Depreciation is reported as an investing activity cash outflow.
• D)Depreciation is reported on the statement of changes in shareholders' equity.

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Definitions:

Fair-value Method

An accounting strategy used to measure and report assets and liabilities on the basis of estimated fair market prices.

Equity Method

An accounting technique used to record investments in associated companies, recognizing the investor's share of the investees' income.

Retrospective Change

An adjustment applied to prior period financial statements to correct an error or reflect a new accounting policy as if it had always been applied.

Goodwill

An intangible asset that represents the surplus value of a company beyond its physical assets and liabilities, often arising from factors such as brand reputation, customer relationships, or intellectual property during an acquisition.