Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December? What is the after-tax cost if Isabel pays the $41,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. Based on requirements a and b, should Isabel pay the $41,000 bill in December or January?
Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December? What is the after-tax cost if Isabel pays the $41,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. Based on requirements a and b, should Isabel pay the $41,000 bill in December or January?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax
Required:
- What is the after-tax cost if Isabel pays the $41,000 bill in December?
- What is the after-tax cost if Isabel pays the $41,000 bill in January? Use Exhibit 3.1.
Note: Round your answer to the nearest whole dollar amount.
- Based on requirements a and b, should Isabel pay the $41,000 bill in December or January?
Transcribed Image Text:EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of
Return
4%
0.962
0.952
5% 6% | 7% | 8% | 9% | 10% | 11% | 12%
0.943 0.935 0.926 0.917 0.909 0.901 0.893
0.890 0.873 0.857 0.842 0.826 0.812 0.797
0.925
0.907
0.889 0.864
0.855 0.823
0.840 | 0.816 | 0.794 | 0.772 | 0.751 | 0.731 | 0.712|
0.792 0.763 0.735 0.708 | 0.683| 0.659 0.636
0.650 0.621 0.593 0.567
Year 5
0.822 0.784
0.747 0.713 0.681
Year 6 0.790 0.746 | 0.705 | 0.666 | 0.630 | 0.596 | 0.564
0.535 0.507
Year 7
0.760 0.711 0.665
0.623 0.583
0.547 0.513
0.482
0.452
Year 8
0.731 0.677
0.627
0.582
0.467
0.434
0.404
Year 9
0.703 0.645
0.592
0.544
0.424 0.391
0.361
Year 10
0.676
0.614
0.558
0.508
0.386 0.352
0.322
Year 11
0.650
0.585 0.527
0.475
0.463 0.422
0.429 0.388 0.350 0.317 0.287
0.397 | 0.356 | 0.319 | 0.286 | 0.257|
0.368 0.326 0.290 0.258 0.229
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
0.442 0.388
0.340
0.299
0.263
0.232
0.205
Year 15
0.555 0.481 0.417 0.362 0.315
0.275 0.239 0.209 0.183
Year 1
Year 2
Year 3
Year 4
0.540 0.502
0.500 0.460
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education