Two Manufacturing Business Entities (A and B)were Created at the Same

question 15

Multiple Choice

Two manufacturing business entities (A and B) were created at the same time this year and started operating on the very same day.They operate on two absolutely identical but separate worlds,but are not in competition with one another.They are absolutely identical in terms of their market success,their productive technology,equipment and infrastructure.They have the same headcount comprising the same categories of skills and competence.Both must pay cash for all their purchases.
The first year's income statements for each firm are as follows:
Which of the following statements is entirely true:

• A) Firm A uses straight line depreciation and has a larger shareholders' equity than B which uses accelerated depreciation
• B) Firm A could invest more in R&D than firm B and has more debt than B does
• C) Firm A uses accelerated depreciation while firm B uses straight-line depreciation
• D) Firm A has less debt than firm B and has more efficient productive equipment

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Definitions:

Book Income Tax Expense

The amount of income tax a company reports in its financial statements, which may differ from the tax owed to tax authorities.

Deferred Tax Asset

An accounting term for items that reduce future tax liability because of temporary differences between the book value and the tax value of assets and liabilities.

Future Taxable Income

The income that a company or individual expects to earn in future periods that will be subject to tax.

Probability

A measure of the likelihood of a specific event happening, expressed as a number between 0 and 1.