You are reading the 2015 annual report of Core Corporation and you find the foll

Question

You are reading the 2015 annual report of Core Corporation and you find the following items in its footnotes.

a. The useful life of machinery has been increased from 10 to 15 years.
b. The expected rate of return on plan assets has been increased to 10% from 8%.
c. The company has started to capitalize small tools purchased beginning in 2015.

For each of the above, determine the effect (higher, lower, or unchanged) of the change on the ratios listed below for the year 2015:

a. Debt-to-equity
b. Return on assets
c. Cash Flow from operations

Explanation / Answer

statement debt to equity return on assets cash flow from operation a unchanged higher lower b lower higher higher c higher unchanged unchanged(because on capitalization both the profits and current assets would decrease equally so no effect)

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