Solo Company has been depreciating its fixed assets over 15 years. It is now clear that these assets will only last a total of 10 years. Solo's accountants have encouraged the firm to revise its annual depreciation to reflect this new information. Which of the following would occur as a result of this change?
A) The company's earnings per share would decrease.
B) The company's cash position would increase.
C) The company's EBIT would increase.
D) Both a and b are correct.
E) All of the answers above are correct.

Question

Quizplus · Accepted Answer

The change in depreciation expense will affect the company's income statement and balance sheet. The increase in depreciation expense will decrease the company's net income, which will in turn decrease the company's earnings per share. The increase in depreciation expense will also decrease the company's book value of fixed assets, which will increase the company's cash position.

Solo Company Has Been Depreciating Its Fixed Assets Over 15