Depreciation: Airplanes and Garbage Trucks Essay

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ACCTNG 3402 – Financial Accounting and Reporting II Assignment due February 13, 2013

Spring, 2013

Depreciation: Airplanes and Garbage Trucks
Your answers to the questions below should be clear, well-written, free of grammar and spelling errors, double-spaced with margins of at least one inch on all sides, and word-processed. In preparing this assignment, you may discuss the issues with each other or with anyone else, but your written answers must be your own work. If you need to quote someone else in your answer, you must give credit to your source. This assignment is due at the beginning of class on February 13, and should be printed and submitted in hard copy in class. No late papers will be accepted. If you cannot be in class on …show more content…
2) How did management use depreciation expense to manage earnings? 3) Why do you think the managers of Waste Management wanted to manage earnings? 4) What was Arthur Andersen’s role in the Waste Management case? What were the terms of its settlement with the SEC? Did Andersen abide by the terms of the settlement? 5) Suppose you were working in the accounting department at Waste Management in 1996. You receive instructions to extend the useful lives of certain assets. What ethical dilemma would you face? What information would you want to gather to help you evaluate the situation?

Part III: Overall Analysis Some accounting systems require all firms to use the same depreciation policies for similar assets. For example, every firm owning a Boeing 757 would depreciate it over the same period. Do you think GAAP should include such a requirement for financial statements? Why or why not? Regardless of your position, your answer should include a description of the advantages and disadvantages of the proposal.

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Appendix: Depreciation policies
Below are excerpts taken from the 2004 annual reports of Delta Airlines, United Airlines and Northwest Airlines: Delta Airlines Long-Lived Assets We record our property and equipment at cost and depreciate or amortize these assets on a straight-line basis to their estimated residual values over their respective estimated useful lives. Residual values for flight equipment range from 5%-40% of cost. We also capitalize
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Part I: Airplanes 1) Northwest Delta United Book Value January 1, 2005 $75.000 $75.000 $75.000 Residual $3.750 $3.750 $3.750 Depreciable Amount $71.250 $71.250 $71.250 Useful Life 14.5 years 20 years 27.5 years Annual Depreciation $4.914 $3.563 $2.591 Accumulated Depreciation at December 31, 2008 $19.655 $14.250 $10.364 Book Value at December 31, 2008 $55.345 $60.750 $64.636 Sale Price I $55.000 $60,000 $65,000 Gain (Loss)…

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