Floors 4 U uses straight-line depreciation for its equipment.The company purchased equipment for $250,000 and estimated its useful life at eight years.The bookkeeper failed to consider the residual value of $25,000.What impact will failing to consider the residual value have on earnings per share and operating income?

Question

Quizplus · Accepted Answer

Failing to consider the residual value in depreciation calculations will result in higher depreciation expense each year, which lowers operating income and, consequently, earnings per share.

Floors 4 U Uses Straight-Line Depreciation for Its Equipment