Question

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.

Answer 1

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

Step-by-step 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.