Question 3 The CEO of Herald Corporation hasasked you to help him describe the e

Question

Question 3

The CEO of Herald Corporation hasasked you to help him describe the effects of differentdepreciation methods. Herald
recently purchased a new machine with a capitalized cost of$500,000. The machine has an expected life of 5 years and
a zero residual value. Select the best response from those belowregarding depreciation for this asset.

A)

if wechoose double declining balance depreciation rather thanstraight-line, depreciation expense in the first
two years of this asset's life will be lower

B)

if wechoose double declining balance depreciation rather thanstraight-line depreciation, total assets will be
greater at the end of each of the first two years of this asset'slife

C)

if wechoose double declining balance depreciation rather thanstraight-line, net income for the first two years
of this asset's life will be lower

D)

more thanone of the above statements are correct

E)

all of theabove statements are correct

F)

none ofthe above statements are correct

Question 3

Explanation / Answer

Double declining balance is an accelerated depreciationmethod. It provides greater depreciation expenses earlier inthe asset's life which provides greater tax benefits in these earlyyears. Thus, C is correct because greater depreciation expenses will lowerthe firm's net income.

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