ACCOUNTING ALTERNATIVES AND FINANCIAL RATIOS. The 1987 annual report for Time Incorporated included the following information on a change in the procedure for amortizing its investment in pay-TV programming:

In the first quarter of 1986 the Company changed the rate of amortization of its pay-TV programming costs to more closely reflect audience viewing patterns. The effect of this change was to reduce programming costs by $58 million and $57 million, resulting in increased net income of $35 million and $31 million, or $.58 per share and $.49 per share, during 1987 and 1986 respectively.

REQUIRED:

1. Which financial ratios would be affected by this change?

2. Would you expect this change in amortization policy to affect the accounts by a larger or smaller amount in future years? Why?