Firms that choose larger salvage values for their depreciable assets often have higher quality of earnings.

Question

Quizplus · Accepted Answer

Choosing a larger salvage value for depreciable assets means that the assets will be depreciated over a longer period of time, which results in lower annual depreciation expenses and higher reported earnings. This can result in a lower quality of earnings because it may be seen as artificially inflating earnings by deferring the recognition of expenses.

Firms That Choose Larger Salvage Values for Their Depreciable Assets