Which of the Following Statements Is CORRECT

question 55

Multiple Choice

Which of the following statements is CORRECT?

• A) Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.
• B) Corporations must use the same depreciation method (e.g., straight line or accelerated) for stockholder reporting and tax purposes.
• C) Since depreciation is not a cash expense, it has no effect on cash flows and thus no effect on capital budgeting decisions.
• D) Under accelerated depreciation, higher depreciation charges occur in the early years, and this reduces the early cash flows and thus lowers a project's projected NPV.
• E) Using accelerated depreciation rather than straight line would normally have no effect on a project's total projected cash flows but it would affect the timing of the cash flows and thus the NPV.

---

Definitions:

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts in preparation for the new accounting period.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was acquired, representing the wear and tear over time.

Service Revenue

Income earned by a company for the services it provides to its clients.

Adjusting Entries

Journal entries made at the end of an accounting period to update certain accounts and report revenues and expenses in the appropriate period.