Final answer:
Profitable businesses typically opt for 200% declining balance depreciation to maximize early tax deductions, while companies with lower marginal rates expected to increase would use straight-line to align with future higher taxable income.
Step-by-step explanation:
Profitable businesses will likely use 200% declining balance depreciation while companies with lower marginal rates that are expected to rise over time will likely use straight-line depreciation. The correct answer is A. straight-line; 200% declining balance.
Profitable businesses prefer an accelerated method like the 200% declining balance to gain larger tax deductions early on when the asset's value is higher. On the other hand, companies in lower tax brackets that expect their rates to increase would prefer the straight-line method, which spreads the deductions evenly over the asset's useful life, matching their future higher taxable income to lower tax expense.
The difference in depreciation methods comes into play with tax planning strategies related to an entity's current and anticipated future income, tax positions, and cash flow considerations. For instance, the 200% declining balance method will significantly reduce taxable income in the earlier years of an asset's life, which is beneficial to profitable companies wanting to minimize taxable income when they have higher profits.