Asseen on a statement of comprehensive income:
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 taxable income and the net income.
E) Interest expense is added to earnings before interest and taxes to get taxable income.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense that reduces the reported earnings of a company, thereby reducing its taxable income. It is shown as an expense on the income statement, but it does not actually involve a cash outlay. Therefore, it reduces both the taxable income and the net income.

Asseen on a Statement of Comprehensive Income