1.)During a recent meeting, the conversation turned to financial concerns that the company is facing. The CFO was listening to the Operations VP discuss whether the company should capitalize the cost of specialized equipment recently purchased by the firm's manufacturing facility or expense the cost immediately.

The Operations VP wanted the CFO to expense the cost of the equipment this year. He explained that this was a bad year for the company and no one was getting bonuses. Thus, expensing the equipment this year would avoid future depreciation expense. That is, by capitalizing the equipment, the company would recognize depreciation expense for the next several years reducing future profits as well as future bonuses.

The CFO turns to you and asks your opinion as to whether to capitalize or expense the cost of the specialized equipment being purchased.

2.) Later in the meeting, the business development manager throws out an opportunity to acquire a competitor firm. The CFO says that it is unlikely that the company can make another acquisition this year as the firm is stretched financially. The manager quickly points out that the company has nearly $100 million in retained earnings. He suggests taking $5 million from retained earnings to buy the company.The CFO just shakes her head, turns to you and says, "You explain it to him."