When net capital spending is a negative value, the ﬁrm has:
A) Depreciation expense which exceeds the cost of new assets acquired.
B) Acquired more ﬁxed assets than it has current assets.
C) Sold more ﬁxed assets than it acquired during a stated period of time.
D) Reduced its total assets during the course of the year.
E) Reduced its investment in inventory.

Question

Quizplus · Accepted Answer

Net capital spending is calculated as (Capital expenditures – Depreciation). When the value of net capital spending is negative, it means that a company has sold more fixed assets than it acquired during a certain period of time. Option A is incorrect because it implies that the company is still acquiring new assets, which would result in a positive net capital spending. Option B is incorrect because it compares fixed assets with current assets, which are different categories of assets. Option D is incorrect because the company could have reduced only a specific category of assets, not necessarily all of them. Option E is incorrect because it refers to inventory investment, not capital spending.

When Net Capital Spending Is a Negative Value, the ﬁRm