ABC, Inc. purchased a machine for $11,000 that, in reality, would last 10 years and be sold for $1,000 at the end of its life. ABC, Inc.s management was concerned about meeting analysts E.P.S. forecast so they opportunistically assumed that the salvage value would be $4,000 and it would operate for 20 years.

1. Assuming that management adopted its opportunistic assumptions when computing the assets depreciation expense, what would the financial statement implications (i.e., misstated accounts) over the assets actual life?

2. What would be the most effective way for the auditor to argue that the depreciation assumptions by the client were unrealistic during the first year in which the asset was depreciated?