Question

Assuming straight-line depreciation is used, a higher estimated useful life will result in a(n)

depreciation expense per year and a(n) ____
net income. (Enter one word per blank.)

a) lower
b) higher

Answer 1

A higher estimated useful life will result in lower depreciation expense per year and higher net income.

Step-by-step explanation:

Assuming straight-line depreciation is used, a higher estimated useful life will result in a lower depreciation expense per year and a higher net income.

Straight-line depreciation allocates the cost of an asset equally over its estimated useful life. This means that a higher estimated useful life will result in lower annual depreciation expenses, as the cost is spread out over a longer period. This, in turn, will result in a higher net income, as depreciation is a non-cash expense that reduces taxable income.

For example, let's say a company purchases a machine for $10,000 with an estimated useful life of 5 years. Using straight-line depreciation, the annual depreciation expense would be $2,000 ($10,000 / 5 years). If the estimated useful life is increased to 10 years, the annual depreciation expense would be $1,000 ($10,000 / 10 years), resulting in lower expenses and a higher net income.

The correct answer is b) higher.