Tax Depreciation

4.1 Understand tax depreciation procedures and the effect of depreciation on the firm's cash flows.

1) Depreciation deductions, like any other business expenses, reduce the income that a firm reports on its income statement.
Answer: TRUE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

2) Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.
Answer: FALSE
Diff: 1
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

3) Under the basic MACRS procedures, the depreciable value of an asset is its full
What is the depreciation expense in year 1?
A) $15,000
B) $12,750
C) $11,250
D) $22,000
Answer: D
Diff: 2
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills
19) Darling Paper Container, Inc. purchased several machines at a total cost of $300,000. The installation cost for this equipment was $25,000. The firm plans to depreciate the equipment using the MACRS 5-year normal recovery period. Prepare a depreciation schedule showing the depreciation expense for each year.
Answer: Depreciation Schedule

Diff: 2
Topic: Depreciation
Learning Obj.: LG 1
Learning Outcome: F-02
Question Status: Previous Edition
AACSB Tag: Analytic Skills

4.2 Discuss the firm's statement of cash flows, operating cash flow, and free cash flow.

1) In the statement of cash flows, the cash flows from financing activities result from debt and equity financing transactions; including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash
The statement of cash flows would show a ________.
A) net decrease of $3,000 in cash and marketable securities
B) net decrease of $5,000 in cash and marketable securities
C) net increase of $3,000 in cash and marketable securities
D) net increase of $5,000 in cash and marketable securities
Answer: C
Diff: 1
Topic: Developing the Statement of Cash Flows
Learning Obj.: LG 2
Learning Outcome: F-02
Question Status: Revised
AACSB Tag: Analytic Skills

43) For the year ended December 31, 2014, a corporation had cash flow from operating activities of $20,000, cash flow from investment activities of -$15,000, and cash flow from financing activities of -$10,000. The statement of cash flows would show a ________.
A) net increase of $5,000 in cash and marketable securities
B) net decrease of $5,000 in cash and marketable securities
C) net decrease of $15,000 in cash and marketable securities
D) net increase of $25,000 in cash and marketable securities
Answer: B
Diff: 1
Topic: Developing the Statement of Cash Flows
Learning Obj.: LG 2
Learning Outcome: F-02
Question Status: Revised
AACSB Tag: Analytic