An asset with a book value of $40,000 is sold at a loss before taxes are considered) of $20,000.The applicable tax rate is 20%.The net after-tax cash effect of this transaction is a _____.

Question

Quizplus · Accepted Answer

The loss before taxes is $20,000. Since the applicable tax rate is 20%, the tax savings from this loss will be $4,000 ($20,000 * 20%). Therefore, the after-tax loss is $16,000 ($20,000 - $4,000). The asset is sold for $40,000, so the cash inflow before taxes is $40,000. The after-tax cash inflow will be $24,000 ($40,000 - $16,000). Therefore, the net after-tax cash effect of this transaction is a cash inflow of $24,000. Answer choice D is the correct answer.

An Asset with a Book Value of $40,000 Is Sold