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Ch 3 BDC - the expense is occurred However since the...

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Business Decision and Communication Problem To Mr. Stuart Brown, This memo is in response to the new amortization policy’s effect on net income. With the new policy, involving an accelerated amortization of new hit movies, you would incur a large part of expenses early in the month. With a straight-line amortization, the expenses would be displayed at a constant rate throughout the year. The accelerated depreciation better displays what happens to newer movies, as they get older they get less popular, and therefore less valuable. The main difference between the two methods is the rate at which
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Unformatted text preview: the expense is occurred. However, since the asset’s life is greater than one year, the accelerated depreciation would not be consistent year to year. In 2004, the company would experience heavier expenses, as the new releases lose value quickly at the start. This would lower the net income for the first year, but in the second year as expenses slowed down, net income would increase with the lower expenses. In this situation, I would recommend using the straight-line amortization, as it gives a more consistent view of depreciation over several years time....
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