Assume that Congress recently passed a provision that will enable Barton's Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BRB's net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BRB's financial statements versus the statements without the provision?Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Question

Quizplus · Accepted Answer

Doubling depreciation will increase the expense, reducing net income, but it will not affect cash flow since depreciation is a non-cash charge. Net fixed assets will decrease due to higher accumulated depreciation.

Assume That Congress Recently Passed a Provision That Will Enable