Flag Financial Uses Straight-Line Depreciation for Its Equipment with an Estimated

Multiple Choice

Flag Financial uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much shorter than 10 years, perhaps 5 years. What is the impact on earnings per share and net income of depreciating equipment over 5 years rather than 10 years?

A) Both earnings per share and net income will decrease.
B) Both earnings per share and net income will increase.
C) Earnings per share will decrease and net income will increase.
D) Earnings per share will increase and net income will decrease.