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

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense that reduces the value of long-term assets over their useful lives. It is shown as an expense on the income statement, which reduces both the pretax income and the net income. However, since it is a non-cash expense, it does not affect the taxes payable. The tax rate is applied to the earnings before interest and taxes (EBIT) when the firm has both depreciation and interest expenses. This is because the interest expense is deducted from EBIT to arrive at taxable income. Dividends and interest expense do not reduce corporate income taxes.

As Seen on an Income Statement