A plant asset with a book value of $50,000 is sold for $40,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

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The loss on sale is $10,000 ($50,000 book value - $40,000 sale price). The tax effect of the loss is a reduction in taxes payable, calculated as the loss amount times the tax rate: $10,000 * 50% = $5,000. This results in a $5,000 cash inflow because it reduces the amount of cash that has to be paid out for taxes.

A Plant Asset with a Book Value of $50,000 Is