(The effect of asset writedowns on cash from operations, LO 1, 3) In the year ended December 31, 2013 Hexham Inc. (Hexham) reported net income of $3,200,000, which included a writedown of $1,000,000 of company assets. During 2013 accounts receivable increased by $250,000, inventory decreased by $175,000, and accounts payable decreased by $90,000. Depreciation expense in 2013 was $410,000.

Required

a. What journal entry did Hexham make to record the writedown of the assets?

b. Calculate cash from operations using the indirect method.

c. Suppose that at the last minute, Hexham’s management decided to delay writing down the assets:
i. What would Hexham’s net income be in 2013 ii. What would Hexham’s cash from operations be in 2013?

d. Explain the differences you found between the net income Hexham originally reported and the net income you calculated under c(i).

e. Explain the differences you found between the cash from operations numbers you calculated under

(b) and (c)/(ii).
*A writedown is a reduction in the carrying amount of an asset to some measure of its market value. It’s achieved by debiting an expense and crediting the asset.