To properly account for depreciation expense, depreciation should first be _____ due to its impact on...
To properly account for depreciation expense, depreciation should first be _____ due to its impact on _____ and then be _____ due to its impact on _____."
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Subtracted; cash flows; added; taxes |
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Subtracted; taxes; added; cash flows |
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Added; cash flows; subtracted; taxes |
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Added; taxes; subtracted; cash flows |
Homework Answers
To properly account for depreciation expense, depreciation should first be subtracted due to its impact on taxes and then be added due to its impact on cash flows.
Second Option (Subtracted; taxes; added; cash flows) is correct
Reasons:
- Depreciation is a non-cash expense for a business.
- It is therefore, subtracted from the revenue.
- Now, this reduction lowers the amount of income and thus lowers the ultimate taxes too.
- But, After arriving at the after tax income, depreciation is added to it since there is actually no cash outflow.
- In order to arrive at the Cash Flows, it is added back to the after tax income to arrive at the cash flows.
In the following example, Revenue is $100 and operating expenses are $40 and depreciation is $10. Depreciation is first subtracted (check the yellow box below) due to its impact on Taxes and then it is added back (check the green box below) due to its impact on Cash flows.
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To properly account for depreciation expense, depreciation
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please read questions because its third time no one can help Depreciation and accounting cash flow...
please read questions because its third time no one can help
Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period A, has gathered the following data relative to the current year's operations: Accruals Current assets Interest expense Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income $15,000 120,000 15,000 400,000 70,000 290,000 21% a. Use the...
Depreciation and accounting cash flow A firm in the third year of depreciating its only asset,...
Depreciation and accounting cash flow A firm in the third year
of depreciating its only asset, which originally cost $173,000 and
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, has gathered the following data relative to the current
year's operations:
Accruals
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Sales revenue
413,000
Inventory
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21%
a. Use the relevant data to determine the operating cash flow
for the current...
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please read questions because its third time no one can help
Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period A, has gathered the following data relative to the current year's operations: Accruals Current assets Interest expense Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income $15,000 120,000 15,000 400,000 70,000 290,000 21% a. Use the...
Depreciation and accounting cash flow A firm in the third year
of depreciating its only asset, which originally cost $173,000 and
has a 5-year MACRS recovery period
, has gathered the following data relative to the current
year's operations:
Accruals
$15,300
Current assets
117,000
Interest expense
15,200
Sales revenue
413,000
Inventory
69,600
Total costs before depreciation, interest and taxes
297,000
Tax rate on ordinary income
21%
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for the current...
Net income of Mansfield Company was $41,000. The accounting records reveal depreciation expense of $76,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $56,000, $19,000, and $16,000, respectively. Prepare the cash flows from operating activities section of Mansfield's statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.) Cash flows from operating activities: Adjustments for noncash effects: Changes in operating assets and liabilities: Net cash...
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