If a depreciable asset is sold:
A)there is no tax consequence.
B)the sale price minus the book value is added to the firm's income and is taxed at the firm's long term capital gain tax rate.
C)the sale price is added to the firm's income and is taxed at the firm's marginal tax rate.
D)the sale price minus the book value is added to the firm's income and is taxed at the firm's marginal tax rate.
E)the sale price minus the book value is added to the firm's income and is taxed at the firm's average tax rate.

Question

Quizplus · Accepted Answer

When a depreciable asset is sold, the sale price minus the book value (i.e. the original cost minus accumulated depreciation) is considered a taxable gain and is added to the firm's income. This taxable gain is taxed at the firm's marginal tax rate, which is the rate applied to the last dollar of income earned. Therefore, choice D is the correct option.

If a Depreciable Asset Is Sold