The Nantell Corporation just purchased an expensive piece of equipment. Assume t

Question

The Nantell Corporation just purchased an expensive piece of equipment. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. (Points : 5) 1)Nantell's taxable income will be lower. 2) Nantell's net fixed assets as shown on the balance sheet will be higher at the end of the year. 3) Nantell's cash position will improve (increase). 4)Nantell's reported net income after taxes for the year will be lower. 5) Nantell's tax liability for the year will be lower.

Explanation / Answer

2) Nantell's net fixed assets as shown on the balance sheet will be higher at the end of the year.

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