The local Allied Moving Company begins this year with capital equal to $250,000.During the year the firm depreciates $150,000 worth of its capital and ends the year with capital equal to $250,000.Which statement correctly summarizes Allied Moving Company's investment?
A) Allied Moving Company made no capital investment during the year.
B) Allied Moving Company made no gross investment during the year.
C) Allied Moving Company made no net investment during the year.
D) Allied Moving Company made net investment of $150,000 during the year.
E) Allied Moving Company made gross investment of $250,000 during the year.

Question

Quizplus · Accepted Answer

Depreciation is not a cash outflow and does not represent a net investment in the company. The fact that Allied Moving Company ended the year with the same amount of capital as it started with suggests that any gross investment (capital expenditures) made during the year were offset by depreciation and other factors such as net income or dividends. Therefore, the company did not make a net investment during the year, and the correct statement is C, "Allied Moving Company made no net investment during the year."

The Local Allied Moving Company Begins This Year with Capital