One of the following is an example of managing earnings down (reducing earnings) ? Reducing research and development expenditures. Changing estimated bad debts from 3 percent to 2.5 percent of sales. Revising the estimated life of equipment from 10 years to 8 years. Not writing off obsolete inventory.

Question

Business

Noel Walters

5 September, 03:56

One of the following is an example of managing earnings down (reducing earnings) ? Reducing research and development expenditures. Changing estimated bad debts from 3 percent to 2.5 percent of sales. Revising the estimated life of equipment from 10 years to 8 years. Not writing off obsolete inventory.

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Adrianna Nelson · Answer 1

Revising the estimated life of equipment from 10 years to 8 years.

Explanation:

When you lower the expected life of equipment from 10 to 8 years that means that you are increasing depreciation costs. If you increase costs but your revenues remains the same, you net profit will decrease.

For example; You have a machine that had a 10 year useful life and a depreciation expense of $4,000 per year. If you reduce the useful life to 8 years, then your new depreciation expense will be $5,000 per year.