Case study: Meadowlands nursing facility

Meadowlands, a for-profit skilled nursing facility, pays taxes at a rate of 40 percent. Assume Meadowlands recorded depreciation expense of $100,000 for the year that ended on December 31, 2012. If Meadowlands changed its method of calculating depreciation such that depreciation expense doubled for the year that ended on December 31, 2012, which of the following statements is(are) most correct?

Meadowlands’ net income (after tax) for the year that ended on December 31, 2012, would increase by $100,000.
Meadowlands’ net income (after tax) for the year that ended on December 31, 2012, would decrease by $100,000.
Meadowlands’ estimated cash flow for the year that ended on December 31, 2012, would increase by $100,000.
Meadowlands’ estimated cash flow for the year that ended on December 31, 2012, would increase by $40,000.
Answers (b) and (d) are correct.

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