An asset with a book value of $50,000 is sold for $30,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

Name: An asset with a book value of $50,000 is sold for $30,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?
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Question

Quizplus · Accepted Answer

The asset is sold at a loss of $20,000 ($50,000 - $30,000). The tax effect of this loss is a tax shield of $10,000 ($20,000 loss * 50% tax rate), resulting in a cash inflow.

An Asset with a Book Value of $50,000 Is Sold