Bigtime Construction discloses the following in a footnote to its financial statements: "Interest is capitalized to construction in progress. Interest capitalized in 2015 was $8,000. The capitalized interest increased reported depreciation expense in 2015 by $500." Below is some selected financial information reported in Bigtime's financial statements. Assume the effective tax rate is 30% and the adjustments do not affect reporting for income tax purposes. Complete the following table by making the adjustments so that interest is not capitalized but rather is expensed in 2015. 1. Calculate Bigtime's interest coverage ratio for 2015 from the firm's given financial statements. 2. Calculate the firm's interest coverage ratio after making adjustments to remove the capitalized interest. 3. After making adjustments to remove the capitalized interest, the cash flow from operating activities would be (lower / higher) than was previously reported on the statement of cash flows before adjustments. At the beginning of year one, HD Inc. purchases a piece of equipment for $95,000. The estimated useful life of the equipment is five years and the estimated residual value at the end of its useful life is expected to be $10,000. HD Inc. uses straight-line depreciation and estimates that as at the end of the third year, the equipment will generate a total of $40,000 in cash flow (undiscounted cash flow) over its remaining life, and at that point the equipment will have a fair value of $36,000. Assuming HD Inc. reports under US GAAP: 4. The carrying amount of the equipment on the firm's balance sheet at the end of year 3 is 5. Determine whether the equipment will be considered impaired at the end of the third year. 6. If the equipment is impaired, determine how much the impairment loss is, and show how the firm will report this in its financial statements. IFRS requires component depreciation. That is, separately depreciate the significant components of an asset (see example 9 on p. 367 of the text). Use the following information to determine the depreciation expense for a company that reports under IFRS and uses the component method of depreciation: On 1 January 2016, a firm acquired a new piece of machinery for a total of $100,000. The machine has a total useful life of 10 years and no residual value. Included in the total cost of the machine is a drum that must be replaced every 5 years and cost $20,000. Also included in the cost of the machine is a rotator that cost $8,000 and it must be replaced every 4 years. Once the drum and the rotator are worn out, they have no residual value. The company uses the straightline method of depreciation. 7. Calculate the depreciation expense that the firm will report in its income statement for FY2016, if its fiscal year runs from 1 January to 31 December 2016, it reports under IFRS and uses the component method of depreciation. 8. If the firm in question 7 above was reporting under US GAAP, uses double-declining balance depreciation but does not use the component method of depreciation, its depreciation expense for FY2016 would be: 9. Assuming all else equal and using your answers in question 7 and 8 above, the firm would have reported a higher amount of net income for FY 2016 if it was reporting under . (IFRS / US GAAP)