Type your question h Flo Choi owns a small business and manages its accounting.

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Type your question hFlo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds were invested in a new building addition as well as in equipment and fixture additions. Choi's banker requries her to submit semiannual financial statements so he can monitor the financial health of the business. He has warned her that if profit margins erode he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank's point of view. Choi knows the profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additons are considered to be put in use on the first day of the following month of their purchase. (The previous rule assumed assets are in use on the first day of the month in which they are purchased.) ??1. Is Choi's rule an ethical violation, or is it a legitimate decision in computing depreciation? ??2. How will Choi's new depreciation rule affect the profit margin of her business?<?XML:NAMESPACE PREFIX = O />

Explanation / Answer

1. Is Choi

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