Straight-Line versus Accelerated Depreciation
Response to the following problem:
Dennis Company currently depreciates its assets using the straight-line method for both tax and financial accounting. Total depreciation expense for this year will be $250,000 using straight-line depreciation. A consultant has just advised the company that it should use accelerated depreciation methods for both tax and financial accounting because "paying lower taxes is better than recognizing higher income." Using accelerated depreciation methods, total depreciation expense this year would be $400,000.
The company has an effective tax rate of 40%. Do you agree with the consultant? Why or why not?