Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late...
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Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $11,000 bill from her accountant for consulting services related to her small business. Reese can pay the $11,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and will be 37 percent next year, and that she can earn an after-tax rate of return of 5 percent on her investments. Required: a. What is the after-tax cost if she pays the $11,000 bill in December? b. What is the after-tax cost if she pays the $11,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. c. Based on requirements a and b, should Reese pay the $11,000 bill in December or January? Complete this question by entering your answers in the tabs below. Required A Required B Required C Based on requirements a and b, should Reese pay the $11,000 bill in December or January? EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return 4% 5% 6% 7% 8% 9% 10% 11% 12% Year 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 Year 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 Year 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 Year 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 Year 5 0.822 Year 6 0.790 0.746 0.705 0.666 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 Year 7 0.665 Year 8 Year 9 Year 10 0.442 0.630 0.760 0.711 0.623 0.583 0.731 0.677 0.627 0.582 0.540 0.703 0.645 0.592 0.544 0.500 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 Year 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 Year 12 0.625 0.557 0.497 0.444 Year 13 0.601 0.530 0.469 0.415 Year 14 0.577 0.505 Year 15 0.555 0.481 0.596 0.564 0.535 0.507 0.547 0.513 0.482 0.452 0.502 0.460 0.467 0.434 0.404 0.424 0.391 0.361 0.397 0.356 0.319 0.286 0.257 0.368 0.326 0.388 0.340 0.299 0.417 0.362 0.315 0.275 0.290 0.258 0.229 0.263 0.232 0.205 0.239 0.209 0.183 Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $11,000 bill from her accountant for consulting services related to her small business. Reese can pay the $11,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and will be 37 percent next year, and that she can earn an after-tax rate of return of 5 percent on her investments. Required: a. What is the after-tax cost if she pays the $11,000 bill in December? b. What is the after-tax cost if she pays the $11,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. c. Based on requirements a and b, should Reese pay the $11,000 bill in December or January? Complete this question by entering your answers in the tabs below. Required A Required B Required C Based on requirements a and b, should Reese pay the $11,000 bill in December or January? EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return 4% 5% 6% 7% 8% 9% 10% 11% 12% Year 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 Year 2 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 Year 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 Year 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 Year 5 0.822 Year 6 0.790 0.746 0.705 0.666 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 Year 7 0.665 Year 8 Year 9 Year 10 0.442 0.630 0.760 0.711 0.623 0.583 0.731 0.677 0.627 0.582 0.540 0.703 0.645 0.592 0.544 0.500 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 Year 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 Year 12 0.625 0.557 0.497 0.444 Year 13 0.601 0.530 0.469 0.415 Year 14 0.577 0.505 Year 15 0.555 0.481 0.596 0.564 0.535 0.507 0.547 0.513 0.482 0.452 0.502 0.460 0.467 0.434 0.404 0.424 0.391 0.361 0.397 0.356 0.319 0.286 0.257 0.368 0.326 0.388 0.340 0.299 0.417 0.362 0.315 0.275 0.290 0.258 0.229 0.263 0.232 0.205 0.239 0.209 0.183
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Related Book For
Taxation Of Individuals And Business Entities 2015
ISBN: 9780077862367
6th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
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