Which of the following is the effect of recording a depletion expense on the profitability and liquidity metrics of a company?
A) It affects asset turnover while cash flow is unaffected.
B) Its asset turnover decreases.
C) Its affects the Statement of Cash Flows.
D) Operating assets increase.

Question

Quizplus · Accepted Answer

Recording a depletion expense decreases the carrying amount of the natural resource asset, which can affect asset turnover (revenue divided by average total assets) by potentially increasing it if revenue remains constant or grows. However, depletion expense is a non-cash charge, meaning it does not directly affect cash flow.

Which of the Following Is the Effect of Recording a Depletion