Question 8

After completing its preliminary financial statements for 2012, Cannon Inc. found a mistake in computing its straight-line Depreciation Expense. After fixing the mistake, Cannons Depreciation Expense was now $10,000 higher. Cannon is a US company with a 35% Federal Statutory Tax Rate.

How did the $10,000 increase in Depreciation Expense affect Net Income for 2012?

Net Income dropped by $6,500

Net Income dropped by $3,500

Net Income increased by $10,000

Net Income increased by $3,500

Net Income dropped by $10,000