Transcribed image text:

You and your friend want to invest in shares of a public company. Your friend, who took an accounting course years ago but dropped out, offered to look at the financial statements of one company and e-mailed you the following about their findings: a. “The balance in accumulated depreciation is very large. I am not sure, but I think that accumulated depreciation is a savings account for future purchases of property and equipment. If I am correct and the company spends everything recorded in accumulated depreciation, they won't have any cash left.” . Is your friend correct in their understanding? (2 marks – 5 minutes) No It's wrong. Accumulated depreciation is an old property or equipment value in future the company will sold the property equipment, cash. 1 1 X get So and or b. “I looked online for the company's ratios and found that its profit margin for 2021 was 8.5% but only 6.0% in 2020. That means that the 2021 results were better as sales revenue must growing, correct?” Has your friend interpreted the profit margin ratio correctly? (profit margin = net income / sales revenue) (2 marks – 5 minutes)