Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and 35 percent next year, and that she can earn an after-tax rate of return of 12 percent on her investments.What is the after-tax cost if she expects her marginal tax rate to be 24 percent next year and pays the $20,000 bill in January? Use Exhibit 3.1.Note: Round your answer to the nearest whole dollar amount.Should Reese pay the $20,000 bill in December or January if she expects her marginal tax rate to be 32 percent this year and 24 percent next year? EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates ofReturnYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13Year 14Year 154%5% 6%7% 8%9% 10% 11% 12%0.9620.9520.943 0.935 0.926 0.9170.909 0.901 0.8930.9250.9070.8900.8730.857 0.8420.826 0.8120.7970.8890.8640.840 0.8160.794 0.772 0.751 0.731 0.7120.855 0.8230.792 0.7630.735 0.7080.683 0.6590.6360.822 0.784 0.747 0.713 0.6810.650 0.621 0.5930.5670.596 0.564 0.5350.5070.790 0.746 0.705 0.666 0.6300.760 0.711 0.665 0.623 0.5830.547 0.513 0.4820.4520.731 0.677 0.6270.582 0.5400.5020.467 0.4340.4040.703 0.645 0.592 0.5440.5000.4600.424 0.3910.3610.676 0.6140.558 0.508 0.4630.4220.386 0.3520.3220.6500.585 0.5270.4750.4290.3880.3500.3170.2870.625 0.557 0.4970.444 0.3970.356 0.3190.286 0.2570.601 0.530 0.4690.4150.3680.326 0.2900.2580.2290.577 0.5050.4420.3880.340 0.2990.2630.2320.2050.555 0.481 0.4170.3620.315 0.275 0.239 0.209 0.183

Question 1 Bill =$20000 Tax rate =24% Tax payable =Income x tax rate =20000 × 0.24=$4800 Present…

Answered: Reese, a calendar-year taxpayer, uses…

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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Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and 35 percent next year, and that she can earn an after-tax rate of return of 12 percent on her investments.

What is the after-tax cost if she expects her marginal tax rate to be 24 percent next year and pays the $20,000 bill in January? Use Exhibit 3.1.
Note: Round your answer to the nearest whole dollar amount.
Should Reese pay the $20,000 bill in December or January if she expects her marginal tax rate to be 32 percent this year and 24 percent next year?

EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of
Return
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
4%
5% 6%
7% 8%
9% 10% 11% 12%
0.962
0.952
0.943 0.935 0.926 0.917
0.909 0.901 0.893
0.925
0.907
0.890
0.873
0.857 0.842
0.826 0.812
0.797
0.889
0.864
0.840 0.816
0.794 0.772 0.751 0.731 0.712
0.855 0.823
0.792 0.763
0.735 0.708
0.683 0.659
0.636
0.822 0.784 0.747 0.713 0.681
0.650 0.621 0.593
0.567
0.596 0.564 0.535
0.507
0.790 0.746 0.705 0.666 0.630
0.760 0.711 0.665 0.623 0.583
0.547 0.513 0.482
0.452
0.731 0.677 0.627
0.582 0.540
0.502
0.467 0.434
0.404
0.703 0.645 0.592 0.544
0.500
0.460
0.424 0.391
0.361
0.676 0.614
0.558 0.508 0.463
0.422
0.386 0.352
0.322
0.650
0.585 0.527
0.475
0.429
0.388
0.350
0.317
0.287
0.625 0.557 0.497
0.444 0.397
0.356 0.319
0.286 0.257
0.601 0.530 0.469
0.415
0.368
0.326 0.290
0.258
0.229
0.577 0.505
0.442
0.388
0.340 0.299
0.263
0.232
0.205
0.555 0.481 0.417
0.362
0.315 0.275 0.239 0.209 0.183

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