Final answer:
The answer to whether a company should use straight-line depreciation to minimize its income tax burden is False. Companies might prefer accelerated depreciation methods like declining balance to lower their taxable income quicker in the asset's early years.
Step-by-step explanation:
If a company is concerned about minimizing its income tax burden, using the straight-line depreciation method would not be the most effective approach. The answer to the question is False. The straight-line method spreads out the depreciation evenly over the useful life of an asset, resulting in lower depreciation expenses in the early years compared to methods like the declining balance method, which accelerates depreciation. Businesses seeking to reduce their taxable income in the short term might prefer an accelerated depreciation method as it offers higher deductions in the initial years after the purchase of an asset. This front-loading of depreciation can lead to a temporary reduction in taxable income, and thus, lower income tax payments during those years.
Using an accelerated method aligns with a strategy aimed at deferring tax liabilities to later periods. However, it's important to note that over the entire life of the asset, total depreciation will be the same; it's just the timing of the deductions that will differ. This tax strategy might be advantageous for companies with high initial investment and those looking to free up cash flow in the early stages of asset utilization.