Question

Which of the following statements regarding the relationship between book value, sales price, and taxes are true when a firm sells a fixed asset?

a) Book value represents the purchase price minus the accumulated depreciation.
b) There will be tax savings if the book value exceeds the sales price.
c) Taxes are based on the difference between the purchase price and sales price of the asset.
d) Taxes are based on the difference between the book value and the sales price.

Answer 1

Book value represents the purchase price minus the accumulated depreciation, and taxes are based on the difference between the book value and the sales price of the asset.

Step-by-step explanation:

The correct statements regarding the relationship between book value, sales price, and taxes when a firm sells a fixed asset are:

1. Book value represents the purchase price minus the accumulated depreciation.
2. Taxes are based on the difference between the book value and the sales price of the asset.

So, options a) and d) are true.