Question

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $34,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $34,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 40 percent this year and next year, and that she can earn an after-tax rate of return of 9 percent on her investments.
a) What is the after-tax cost if Isabel pays the $34,000 bill in December?
b) What is the after-tax cost if Isabel pays the $34,000 bill in January?(Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Answer 1

Answer:

a) The after-tax cost if Isabel pays the $34,000 bill in December is equal to $24,000.

b) The after-tax cost if Isabel pays the $34,000 bill in January is equal to $21,523.

Explanation:

Note: See the attached excel file for how the answers are calculated and note the alphabets A  to I for how is cell is calculated.

Download xlsx