As seen on an income statement:
A)interest is deducted from income and increases the total taxes incurred.
B)the tax rate is applied to the earnings before interest and taxes when the ﬁrm has both depreciation and
Interest expenses.
C)depreciation is shown as an expense but does not affect the taxes payable.
D)depreciation reduces both the pretax income and the net income.
E)interest expense is added to earnings before interest and taxes to get pretax income.

Question

Quizplus · Accepted Answer

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. It reduces the pretax income because it is considered an expense, which in turn reduces the net income because the company pays less tax due to the lower taxable income.

As Seen on an Income Statement