Arena,Inc.uses straight-line depreciation for its equipment.Arena purchased equipment for $300,000 and estimated its useful life at eight years.The bookkeeper failed to consider the residual value of $50,000.What is the impact on earnings per share and operating income of failing to consider the residual value?

Question

Quizplus · Accepted Answer

By not considering the residual value, depreciation expense is overstated each year, which leads to understating both operating income and earnings per share.

Arena,IncUses Straight-Line Depreciation for Its Equipment