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Financial Statement Analysis

1. Two businessmen were discussing the purpose of depreciating long-term assets. The first stated, "My company depreciates assets to better reflect their market value. We all know that most items decrease in value over time, and depreciation helps us to reflect this, resulting in more relevant information." The second disagreed, saying, "I think you're wrong. All of my sales will eventually become cash, and all of my expenses except depreciation will be paid in cash. Therefore, depreciation expense allows me to accumulate cash in order to replace assets when they wear out or become obsolete." Do you agree with statements, only the first statement, only the second statement, or neither statement? Why?

2. Two companies own the same assets and sell the same product. Both companies had sales of $10,000,000, purchases of $400,000, and cash operating expenses of $200,000. However, the income statements of these two companies indicated the first company had a net income of $100,000, while the second sustained a net loss of $150,000. Explain some factors that could cause this to occur

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Two businessmen were discussing the purpose of depreciating long-term assets. The first stated, "My company depreciates assets to better reflect their market value. We all know that most items decrease in value over time, and depreciation helps us to reflect this, resulting in more relevant information." The second disagreed, saying, "I think you're wrong. All of my sales will eventually become cash, and all of my expenses except depreciation will be paid in cash. Therefore, depreciation expense allows me to accumulate cash in order to replace assets when they wear ...

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Response discusses the Financial Statement Analysis

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