Chapter 6, Problem 6.12E

Exercise 6.12 LO 3

Financial statement effects of depreciation-straight-line versus accelerated methods Assume that a company chooses an accelerated method of calculating depreciation expense for financial statement reporting purposes for an asset with a five-year life.

Required:

State the effect (higher, lower, no effect) of accelerated depreciation relative to straight-line depreciation on:

1. Depreciation expense in the first year.
2. The asset’s net book value after two years.
3. Cash flows from operations (excluding income taxes).