USA Accounting Question

[greentext]

What is the effect on the Balance Sheet of adding $10 of depreciation, given a 40% tax rate? (Choose 1)

Asked 5 MBA students this question and no one knew it....

1. Retained Earnings decrease $10, Fixed assets decrease $10
2. Retained Earnings increase $10, Fixed assets decrease $10
3. Cash increases $6, Retained Earnings decrease $4, Fixed assets decrease $10
4. Cash increases $4, Retained Earnings decrease $6, Fixed assets decrease $10
5. No change
6. Fixed assets increase $10

 

[Becky]

Is this a study question?

 

[Steve-LevelUp]

You will need to work through the logic of each one. It will be a process of elimination. If this is a study question, then please attempt to eliminate the incorrect options and then if you can narrow it down and explain where why you cannot determine the correct answer, then we can help.

 

[bklynboy]

Take a guess and add your logic. To me its an easy answer but curious how you think through the problem which helps you understand the rationale.

Hint: its NOT number 5.

 

[kirby]

Next time ask 5 accounting students

 

[greentext]

You will need to work through the logic of each one. It will be a process of elimination. If this is a study question, then please attempt to eliminate the incorrect options and then if you can narrow it down and explain where why you cannot determine the correct answer, then we can help.

I am having trouble choosing between 1 and 4