Interview Question: You overstated depreciation by $100 for the first year. How do you adjust it in the second year?
Does anyone know the answer to this question and could walk through what the impact would be on the 3 financial statements?
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In reality I think the company may restate its financials for the prior year? Idk exactly though
interested to hear thoughts
Sure. Depreciation decreases by 100. Assuming a 30% tax rate, net income is up $70.
Indirect method this becomes top line item in CFS. However, this is a non-cash transaction and PPE is going to increase as it didn’t actually depreciate by the previous amount stated, so PPE is up 100 and cash is down $30. So:
A:
Cash $30v
PPE $100^
L/OE:
RE $70^
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