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 40%. The net after- tax cash effect of this transaction is a:

Question

Quizplus · Accepted Answer

The asset is sold for $20,000 ($40,000 book value - $20,000 loss). The tax benefit from the loss is $8,000 ($20,000 loss x 40% tax rate). Therefore, the net after-tax cash inflow is $28,000 ($20,000 sale price + $8,000 tax benefit).

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