Dennis Company currently depreciates its assets using the straight-line method for both tax and financial accounting. Total
Question:
Dennis Company currently depreciates its assets using the straight-line method for both tax and financial accounting. Total depreciation expense for this year will be $250,000 using straight-line depreciation. A consultant has just advised the company that it should use accelerated depreciation methods for both tax and financial accounting because “paying lower taxes is better than recognizing higher income.” Using accelerated depreciation methods, total depreciation expense this year would be $400,000. The company has an effective tax rate of 40%. Do you agree with the consultant? Why or why not?
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Discussion First the consultant though partly correct is not worth what De...View the full answer
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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