Which of the following statements is CORRECT?
A) The more depreciation a firm reports,the higher its tax bill,other things held constant.
B) Because a firm's cash flow is shown as the lowest entry on the income statement,people often call it "the bottom line."
C) Depreciation reduces a firm's cash balance,so an increase in depreciation would normally lead to a reduction in the firm's cash flow.
D) Operating income is derived from the firm's regular core business.Operating income is calculated as Revenues less Operating costs.Operating costs do not include interest or taxes.
E) Depreciation is not a cash charge,so it does not have an effect on a firm's reported profits.

Question

Quizplus · Accepted Answer

Option D is correct because it correctly defines operating income and its calculation. Option A is incorrect because more depreciation reduces taxable income, thus lowering the tax bill. Option B is incorrect because the "bottom line" usually refers to the net income, not cash flow. Option C is incorrect because depreciation is a non-cash expense and does not directly affect cash flow. Option E is incorrect for the same reason as option C.

Which of the Following Statements Is CORRECT