Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is defined as the income gain from selling a capital asset for more than its adjusted basis?

1. Net income

2. Capital gains

3. Cash flow

4. Asset depreciation

The correct answer is: Capital gains

The correct answer is capital gains, which refer specifically to the profit realized when a capital asset is sold for a price greater than its adjusted basis. The adjusted basis typically includes the original purchase price plus any associated costs necessary to improve or maintain the asset. This concept is crucial in the context of taxes and investment strategies, as capital gains are often subject to taxation. Understanding capital gains helps investors evaluate the performance of their investments and make informed decisions regarding buying or selling assets. Net income refers to the total earnings of a company after all expenses and taxes have been deducted, which is different from the concept of capital gains focused on asset sales. Cash flow is a measure of the net amount of cash being transferred into and out of a business, reflecting liquidity rather than specific asset sales. Asset depreciation relates to the decrease in the value of an asset over time, which is the opposite of what occurs when a capital asset is sold for a profit.