Question

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

Future Future
Taxable Amts Deductible Amts
a. Yes Yes
b. Yes No
c. No Yes
d. No No

Answer 1

The correct answer to how depreciation affects future tax amounts is option a, which indicates that depreciation results in both 'Future Taxable Amounts' and 'Future Deductible Amounts'.

Step-by-step explanation:

The question is related to the concept of depreciation and its tax implications for a piece of machinery acquired by a business. When a business records depreciation for an asset, it spreads the cost of that asset over its useful life. For tax purposes, depreciation is acknowledged as a non-cash expense that can reduce taxable income, leading to 'Future Deductible Amounts'. Over time, this can result in accumulated depreciation which will decrease the book value of the machinery on the balance sheet, and consequently, when the machinery is sold, it may result in 'Future Taxable Amounts' if the sale price is higher than the book value.

The correct answer to the question is option a. Yes Yes, meaning that recording depreciation can result in both future taxable amounts, if the disposal value of the machinery exceeds its depreciated book value, and future deductible amounts, as the non-cash depreciation expense reduces taxable income over the life of the machinery.