Balance Sheet Net property, plant,
The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year?
A) Net property, plant, and equipment would rise to $126 million, and total assets and stockholders' equity would be adjusted accordingly.
B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholders' equity would be adjusted accordingly.
C) Long-term liabilities would rise to $131 million, and total liabilities and stockholders' equity would be adjusted accordingly.
D) Long-term liabilities would fall to $111 million, and total liabilities and stockholders' equity would be adjusted accordingly.

Question

Balance Sheet   Net property, plant,
 The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year?
A) Net property, plant, and equipment would rise to $126 million, and total assets and stockholders' equity would be adjusted accordingly. 
B) Net property, plant, and equipment would fall to $116 million, and total assets and stockholders' equity would be adjusted accordingly. 
C) Long-term liabilities would rise to $131 million, and total liabilities and stockholders' equity would be adjusted accordingly. 
D) Long-term liabilities would fall to $111 million, and total liabilities and stockholders' equity would be adjusted accordingly.

Quizplus · Accepted Answer

If the company's long-term assets were judged to depreciate at an extra $5 million per year, then the net property, plant, and equipment would decrease by $5 million per year. Therefore, after one year, the net property, plant, and equipment would decrease by $120 million (24 years × $5 million per year) and would become $116 million ($121 million - $5 million). Total assets would also decrease by $120 million, and total stockholders' equity would decrease by the same amount. Therefore, the correct answer is B.

Balance Sheet Net Property, Plant