Assume that Congress recently passed a provision that will enable Bev's Beverages Inc.(BBI) 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, BBI's net income after taxes was forecasted to be $4 million.Which of the following best describes the impact of the new provision on BBI's financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
A)The provision will reduce the company's net cash flow.
B)The provision will increase the company's tax payments.
C)Net fixed assets on the balance sheet will increase.
D)The provision will increase the company's net income.
E)Net fixed assets on the balance sheet will decrease.

Question

Quizplus · Accepted Answer

Doubling the depreciation expense will increase accumulated depreciation, reducing net fixed assets on the balance sheet.

Assume That Congress Recently Passed a Provision That Will Enable