On January 1, Loring Company purchased new machinery costing $400,000 on a note payable with equal payments due at the end of each of the next 5 years at a rate of interest equal to 8%. The machinery is expected to last 10 years, and Loring uses straight-line depreciation. What impact will this have on the December 31 cash balance?

a.The cash balance will be $40,000 lower because of depreciation expense.

b.The cash balance will be $80,000 lower because of depreciation expense.

c.The cash balance will not be affected.

d.The cash balance will be $400,000 higher because of borrowing on the note payable. e.None of these choices are correct.