Which one of the following statements concerning depreciation is CORRECT? a. Depreciation increases net income b....

Which one of the following statements concerning depreciation is CORRECT?

	a.	Depreciation increases net income
	b.	Depreciation increases net fixed assets
	c.	Depreciation lowers taxes for a profitable firm
	d.	Depreciation has no effect on net income
	e.	Depreciation decreases net working capital

Expert Solution

ANSWER c.) Depreciation lowers taxes for a profitable firm

This statement is right, as depreciation is an expense and reduces the profit for a profitable firm and thus decreases its Taxes.

REASON FOR OTHERS NOT THE CHOICE

b.) Depreciation increases Net fixed assests is wrong as imn starting though the depreciation increases the asset but by at last it decreases the fixed asset

By formula ; Net Fixed Assets = Total Fixed Assets – Accumulated Depreciation

As the accumulated depriciation will increase the net fixed asset will decrease.

a.) and d.) are wrong, as depreciation expense reduces the net income.

e.) is also wrong, as depreciation is an expense or fixed asset so does not effect the net working capital.

jeff jeffy answered 1 year ago

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