Which one of the following statements is correct concerning a corporation with taxable income of $125,000?
A)Net income minus dividends paid will equal the ending retained earnings for the year.
B)An increase in depreciation will increase the operating cash flow.
C)Net income divided by the number of shares outstanding will equal the dividends per share.
D)Interest paid will be included in both net income and operating cash flow.
E)An increase in the tax rate will increase both net income and operating cash flow.

Question

Quizplus · Accepted Answer

An increase in depreciation reduces taxable income, which in turn reduces the tax liability. This does not affect the cash inflow but decreases the cash outflow for taxes, effectively increasing the operating cash flow.

Which One of the Following Statements Is Correct Concerning a Corporation