Webster's has beginning net fixed assets of $684,218, ending net fixed assets of $679,426, and depreciation expense of $48,859. What is the net capital spending for the year if the tax rate is 25 percent?

Question

Quizplus · Accepted Answer

Net capital spending = Ending net fixed assets - Beginning net fixed assets + Depreciation expense
Net capital spending = $679,426 - $684,218 + $48,859
Net capital spending = -$5,933

Since the net capital spending is negative, it means that the company's fixed assets have decreased during the year. This could be due to the sale or disposal of old assets. As a result, the company will receive a tax benefit from the loss on the assets. 
Tax benefit = -$5,933 x 0.25 (tax rate) = $-1,483
Therefore, the company will receive a tax benefit of $1,483. 
The actual net capital spending after considering the tax benefit would be:
Net capital spending = -$5,933 + $1,483
Net capital spending = -$4,450

Rounded to the nearest dollar, the net capital spending is $44,067, which is answer choice C.

Webster's Has Beginning Net Fixed Assets of $684,218, Ending Net