Gonzalez Corporation reported net income of $58,000. Depreciation expense for th

Question

Gonzalez Corporation reported net income of $58,000. Depreciation expense for the year was $132,000. The company calculates depreciation expense using the straight-line method, with a useful life of 10 years. Top management would like to switch to a 15-year useful life because depreciation expense would be reduced to $88,000. The CEO says, “Increasing the useful life would increase net income and net cash provided by operating activities.

Provide a comparative analysis showing net income and net cash provided by operating activities (ignoring other accrual adjustments) using a 10-year and a 15-year useful life. (Ignore income taxes.)

Explanation / Answer

So statement is partially correct . As by changimg the useful life the net income is imcreased but do not effect the cash from operation.

10 year life 15 year life Profit before depriciation 190000 190000 Less depreciation 132000 88000 Net income 58000 102000 Add depriciation 132000 88000 Cash from operating activities 190000 190000

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