ABC has the following accounts in the Property, Plant and Equipment (PPE) section of its balance sheet: Land, Buildings, and Equipment. Each non-current asset account has a separate accumulated depreciation contra-account except for Land. ABC uses the historical cost principle to value its fixed assess after acquisition. ABC completed the following transactions in fiscal year 2017. ABC has a fiscal year end of 31" December 34 January 2017: ABC exchanged old equipment with accumulated depreciation of 130,000 (cost of acquisition = 272,000) for similar type of new equipment with a selling price of 350,000. In addition to the exchange of the old equipment with the new, ABC paid 200,000 in cash to the supplier of the new equipment. The fair market value of the equipment given up by ABC cannot be estimated reliably. 1" July 2017: ABC sold the Building A. The Building A appeared with a cost of 1,310,000 and accumulated depreciation of 260,000 in the balance sheet of ABC for the prior fiscal year 2016. ABC uses the straight-line depreciation method for estimating the depreciation expense of its buildings. The management of ABC estimates a useful life of Building A equal to 40 years and a residual value equal to 310,000. ABC received from the purchaser of the building 230,000 cash and a 710,500 note receivable. 31 October 2017: ABC made significant capital expenditures, acquiring land and a new building for a total price of 780,000. Based on estimates of an independent appraisal, the land had a fair value of 442,200 and the building of 361,800. 31 December 2017: ABC recognized depreciation for its fixed assets based on the following information: . The management of ABC expects a useful life for its newly purchased equipment equal to 5 years and a residual value equal to 10% of its acquisition cost. ABC uses the double-declining-balance method for estimating the depreciation on its equipment. - The management of ABC expects a useful life for its newly purchased building equal to 40 years and a residual value equal to 25% of its acquisition cost. ABC uses the straight-line depreciation method for estimating the depreciation on its buildings. During the fiscal year 2018, ABC has not purchased or sold any fixed assets (zero net capital expenditures). 31 December 2018: ABC recognized depreciation for its fixed assets based on the following information: . The management of ABC used the same assumptions for the estimation of depreciation on its equipment as in fiscal year 2017. . The management of ABC changed its assumptions for the estimation of depreciation on its building compared to fiscal year 2017. The remaining useful life is estimated as equal to 45 years and the residual value as equal to 50,000. The changes were effective from the beginning of the fiscal year 2018. ABC continues to use the straight-line depreciation method for estimating the depreciation on its buildings. Required: Based on the above data, please record the journal entries in ABC's books for fiscal years 2017 and 2018 B. (5%) Please answer the following question: Do you believe that the management of a public company i.e. listed firm on a stock exchange) is able to manage the firm's earnings and overstate its financial performance through the change of accounting estimates related to the depreciation policy? Explain your answer and provide examples of a hypothetical and/or a real firm that engaged in such accounting practices. Please also provide a brief discussion of the reasons that may explain the behavior and the accounting choices of the firm's top management in the above described context. (Word Limit 500 words) ABC has the following accounts in the Property, Plant and Equipment (PPE) section of its balance sheet: Land, Buildings, and Equipment. Each non-current asset account has a separate accumulated depreciation contra-account except for Land. ABC uses the historical cost principle to value its fixed assess after acquisition. ABC completed the following transactions in fiscal year 2017. ABC has a fiscal year end of 31" December 34 January 2017: ABC exchanged old equipment with accumulated depreciation of 130,000 (cost of acquisition = 272,000) for similar type of new equipment with a selling price of 350,000. In addition to the exchange of the old equipment with the new, ABC paid 200,000 in cash to the supplier of the new equipment. The fair market value of the equipment given up by ABC cannot be estimated reliably. 1" July 2017: ABC sold the Building A. The Building A appeared with a cost of 1,310,000 and accumulated depreciation of 260,000 in the balance sheet of ABC for the prior fiscal year 2016. ABC uses the straight-line depreciation method for estimating the depreciation expense of its buildings. The management of ABC estimates a useful life of Building A equal to 40 years and a residual value equal to 310,000. ABC received from the purchaser of the building 230,000 cash and a 710,500 note receivable. 31 October 2017: ABC made significant capital expenditures, acquiring land and a new building for a total price of 780,000. Based on estimates of an independent appraisal, the land had a fair value of 442,200 and the building of 361,800. 31 December 2017: ABC recognized depreciation for its fixed assets based on the following information: . The management of ABC expects a useful life for its newly purchased equipment equal to 5 years and a residual value equal to 10% of its acquisition cost. ABC uses the double-declining-balance method for estimating the depreciation on its equipment. - The management of ABC expects a useful life for its newly purchased building equal to 40 years and a residual value equal to 25% of its acquisition cost. ABC uses the straight-line depreciation method for estimating the depreciation on its buildings. During the fiscal year 2018, ABC has not purchased or sold any fixed assets (zero net capital expenditures). 31 December 2018: ABC recognized depreciation for its fixed assets based on the following information: . The management of ABC used the same assumptions for the estimation of depreciation on its equipment as in fiscal year 2017. . The management of ABC changed its assumptions for the estimation of depreciation on its building compared to fiscal year 2017. The remaining useful life is estimated as equal to 45 years and the residual value as equal to 50,000. The changes were effective from the beginning of the fiscal year 2018. ABC continues to use the straight-line depreciation method for estimating the depreciation on its buildings. Required: Based on the above data, please record the journal entries in ABC's books for fiscal years 2017 and 2018 B. (5%) Please answer the following question: Do you believe that the management of a public company i.e. listed firm on a stock exchange) is able to manage the firm's earnings and overstate its financial performance through the change of accounting estimates related to the depreciation policy? Explain your answer and provide examples of a hypothetical and/or a real firm that engaged in such accounting practices. Please also provide a brief discussion of the reasons that may explain the behavior and the accounting choices of the firm's top management in the above described context. (Word Limit 500 words)