An asset with a book value of $320,000 is sold at a $240,000 pre-tax gain in a year when the tax rate is 20%.A _____ is the tax effect of the gain.

Question

Quizplus · Accepted Answer

The tax effect of the gain is calculated as the pre-tax gain ($240,000) multiplied by the tax rate (20%), which equals $48,000. This amount represents the tax payable on the gain, hence a cash outflow of $48,000.

An Asset with a Book Value of $320,000 Is Sold