Question

A company uses straight-line instead of an accelerated method of depreciation. Assuming a tax rate of zero, which statement is true as a result of its choice of depreciation methods?

Answer 1

With a zero tax rate, a company using the straight-line method of depreciation will have an even expense allocation over the asset's life, but there will be no tax implications due to the absence of taxes.

Step-by-step explanation:

If a company uses the straight-line method of depreciation rather than an accelerated method, and assuming a tax rate of zero, income statement expenses will be spread evenly over the life of the asset. With the straight-line method, the depreciation expense each year remains constant, which creates a uniform charge to expenses over the asset's useful life.

This is different from an accelerated method of depreciation, where the expense is higher in the earlier years of the asset's life and decreases over time. However, given a tax rate of zero, there will not be any tax implications from the choice of depreciation method, as taxes are not being considered in this scenario.