Which one of these is correct?

Taxable income must be a positive value.

Net income is distributed either to dividends or retained earnings.

Taxable income equals net income * (1 + Average tax rate).

Depreciation has no effect on taxes.

Interest paid is a noncash item.

Net income is distributed either to dividends or retained earnings.

Explanation:

The net income is calculated after providing for all the expenses, that is after providing for the tax expense from operating profit, it is net income.

Basically any amount distributed as dividend to shareholders whether preference or equity is deducted from net income, and the balance if any in net income forms part of retained earnings.

This is as per the guidelines of GAAP, for preparation and presentation of financial statements.

Therefore, the correct statement is:

Statement 2