PRINCIPLES OF TAXATION F/BUS.+INVEST.
PRINCIPLES OF TAXATION F/BUS.+INVEST.
22nd Edition
ISBN: 9781259917097
Author: Jones
Publisher: MCG
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Chapter 4, Problem 8QPD
To determine

Explain the decision of Firm A to defer the income to the next year under the given situation.

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The company is planning to provide services to a client and receives $90,000 in year 2020. The client has the option to pay the money in the current year or over the next 3 years. Accordingly, Pioneer has the option of reporting the profit in the current year or over the next 3 years. Assume that Pioneer’s uses 9% discount rate and its marginal tax rate is 35% in year 2020 and 40% in the next three years. Which option should the company select? And why
Firm A expects to receive a $25,000 item of income in August and a second $25,000 item of income in December. The firm could delay the receipt of both items until January. As a result, it would defer the payment of tax on $50,000 income for one full year. Firm A decides to receive the August payment this year (and pay current tax on $25,000 income) but delay the receipt of the December payment. Can you offer an explanation for this decision?
B. Company Y has agreed to sell office furniture to Company Z in year 2021 for $135,000. Company Z proposed to Company Y to pay the amount over the next 3 years instead of paying it in the current year since profits are taxed as earned. Company Y uses 9% discount rate and is subject to 30% in year 2021 and 35% in future years. Should Company Y accept the proposal of Company Z? and why? (

Chapter 4 Solutions

PRINCIPLES OF TAXATION F/BUS.+INVEST.

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