Question

If a company wanted to increase net income by making opportunistic assumptions (i.e., increases net income) about its annual depreciation method, which of the following would it likely do:

a. increase the historical cost of the asset

b. reduce the number of years of useful life

c. reducing its assumption of salvage value

d. increase the number of years of useful life

Answer 1

The correct answer is

D) increase the number of years of useful life

explanation

In order to increase the net income, we have to reduce the depreciation expense. In order to dercrease depreciation expense per year we have to increase the life of assets in number of years. As life of the asset and depreciation expense is inversally propotional because if we ncrease the life depreciation expense decreases and vica versa. Remaining all options are incorrect as increasing the cost will increase depreciation expense and reuding the life will increase depreciation expense and reducing salvage value will also increase depreciation expense per year.