James Company has an asset that cost $5,000 and currently has accumulated depreciation of $2,000. Suppose the firm sold the asset for $2,500 and is subject to a 30% income tax rate. The loss on disposal would be:

Question

Quizplus · Accepted Answer

To calculate the loss on disposal, we need to subtract the selling price from the net book value (cost - accumulated depreciation):

$5,000 - $2,000 = $3,000 (net book value)

$3,000 - $2,500 = $500 (loss on disposal)

Since the firm is subject to a 30% income tax rate, the tax savings from this loss would be:

$500 * 0.3 = $150

Therefore, the after-tax loss on disposal would be:

$500 - $150 = $350

Therefore, the best choice is (B) $500.

James Company Has an Asset That Cost $5,000 and Currently