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 the depreciation expense will accelerate the reduction of net fixed assets on the balance sheet because depreciation reduces the book value of fixed assets over time. This does not directly affect cash flow or increase net income; instead, it reduces taxable income, potentially lowering tax payments, not increasing them.

Assume That Congress Recently Passed a Provision That Will Enable