Four Events Pertaining to PPE Assets Are Described Below

question 15

Essay

Four events pertaining to PPE assets are described below.
(a) Computed depreciation for use in the annual income tax return (a different method is used in the financial statements).
(b) Made a year-end adjusting entry to record depreciation expense for financial reporting purposes.
(c) Sold old equipment for cash at a price below its book value, but above its income tax basis.
(d) Traded an old automobile in on a new one. The dealer granted a trade-in allowance on the old vehicle that was substantially above its book value and its tax basis. However, the trade-in allowance amounted to only a small portion of the price of the new car; most of the purchase price was paid in cash.
Indicate the immediate effects of each of these events upon the financial measurements in the four column headings listed below. Use the code letters, I for increase, D for decrease, and NE for no effect.
Note: Indicate only the immediate effects of each transaction. Do not attempt to anticipate how changes in taxable income will affect future cash flows.
$\begin{array}{|c|c|c|c|c|}\hline \text { Transaction } & \text { Current assets } & \text { Profit } & \text { Taxable income } & \begin{array}{c}\text { Net cash flow } \\\text { (all activities } \\\text { combined) }\end{array} \\\hline \text { (a) } &\underline{\quad\quad} &\underline{\quad\quad} & \underline{\quad\quad}&\underline{\quad\quad} \\\hline \text { (b) } & \underline{\quad\quad}& \underline{\quad\quad} & \underline{\quad\quad} &\underline{\quad\quad} \\\hline \text { (c) } & \underline{\quad\quad}&\underline{\quad\quad}& \underline{\quad\quad} &\underline{\quad\quad} \\\hline \text { (d) } &\underline{\quad\quad} & \underline{\quad\quad}& \underline{\quad\quad}&\underline{\quad\quad} \\\hline\end{array}$

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Definitions:

Chinese Consumers

Individuals or groups in China engaging in the purchase of goods and services.

US Goods

Products and commodities that are manufactured or produced within the United States.

Buy Yuan

An action that involves purchasing the Chinese currency, also known as Renminbi, likely as an investment or to pay for goods and services in China.

Canadian Dollar Depreciates

A decrease in the value of the Canadian dollar relative to another currency.