Question

1. if a firm shortens the useful life of a long term asset it will most likely cause

a. higher tax expense

b. lower net income

c. higher inet income

2. a firm has a high cash payments to its suppliers but low account payable as a finacial analyst, your conclusion likely

a. it is positive sign as the firm has ample cash to make payment

b. it is negative as the firm should make better use of suppliers financing

c. it is positive sigh as the firm can finish the production cycle quicker and increase turnover

Answer 1

1. Option (b) is correct

If a firm shortens the useful life of a long term asset, then it will most likely cause lower net income. When the life of long term asset is shortened, then there will be increase in depreciation expense for all the years. And when depreciation expense is increased, net income will be lower.

2. Option (c) is correct

When the cash payments to suppliers are high and accounts payable are low, then it is a positive sign as the firm can finish the production cycle quicker and increase turnover.