Barnhill, Inc.uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value.The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years.What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?

Question

Quizplus · Accepted Answer

Depreciating equipment over a longer period (20 years instead of 10 years) will result in lower annual depreciation expense, thereby increasing net income. Since earnings per share (EPS) is calculated based on net income, EPS will also increase.