Assume for this question that Pappas Company commenced operations on January 1, 2020, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 12 years, but in December 2020 management realized that the assets would last for 17 years. The firm’s accountants plan to report the 2020 financial statements based on this new information. How would the new depreciation assumption affect the company’s financial statements?
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The firm’s reported net fixed assets would decrease.
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The firm’s cash position in 2020 would decrease.
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The firm’s reported 2020 earnings per share would decrease.
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The firm’s EBIT would decrease.
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