Answered: Juan’s marginal tax rate was 15% in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In 2019, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be recovered out of future royalties. If the book was not completed by the end of 2020, however, Juan would be required to repay the publisher for the advance. Juan did not complete the book in 2020, and in accor- dance with the agreement, he repaid the $50,000 to the publisher in 2021. Juan is a cash basis taxpayer. What are the tax consequences to Juan of the repayment under the following assumptions?

a. Juan’s marginal tax rate was 15% in 2019 and 35% in 2021.

b. Juan’s marginal tax rate was 35% in 2019 and 12% in 2021.

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