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ed as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss

ed as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss

FINANCIAL ACCOUNTING
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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Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. Use Appendix A. b. Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss limitations do not apply. * I only need Requirement B to be solved
APPENDIXA Present Value of $1 Periods 3% 4% 5% 6% 7% 8% 9% 1 .971 962 .952 .943 .935 .926 917 .943 925 .907 .890 .873 .857 .842 3 .915 .889 .864 .840 .816 .794 .772 .888 .855 .823 .792 .763 .735 708 .863 .822 .784 .747 .713 .681 .650 6. .837 .790 .746 .705 .666 .630 .596 .813 .760 .711 665 .623 .583 547 8. .789 .731 .677 .627 .582 .540 .502 9. .766 .703 .645 .592 .544 .500 460 10 .744 .676 .614 .558 .508 .463 422 11 .722 .650 .585 .527 475 429 .388 12 .701 .625 .557 497 .444 .397 .356 13 .681 .601 .530 469 415 368 326 14 .661 .577 .505 442 .388 340 299 15 .642 .555 .481 417 .362 .315 .275 16 .623 .534 458 .394 .339 .292 .252 17 .605 .513 436 371 .317 .270 231 18 .587 494 416 350 .296 .250 .212 19 .570 475 .396 .331 .277 .232 .194 20 .554 456 .377 312 .258 .215 .178 Periods 10% 11% 12% 13% 14% 15% 20% .909 .901 .893 .885 .877 .870 .833 .826 .812 .797 783 .769 .756 .694 751 .731 .712 .693 .675 .658 .579 4 .683 .659 .636 .613 .592 .572 482 .621 .593 .567 543 .519 497 402 6. 564 .535 .507 480 456 432 .335 7. .513 482 452 425 400 376 .279 8 467 434 404 .376 351 327 .233 .424 391 .361 333 308 284 .194 10 386 .352 .322 295 270 .247 .162 11 350 317 287 .261 237 H 215 .135
Transcribed Image Text:APPENDIXA Present Value of $1 Periods 3% 4% 5% 6% 7% 8% 9% 1 .971 962 .952 .943 .935 .926 917 .943 925 .907 .890 .873 .857 .842 3 .915 .889 .864 .840 .816 .794 .772 .888 .855 .823 .792 .763 .735 708 .863 .822 .784 .747 .713 .681 .650 6. .837 .790 .746 .705 .666 .630 .596 .813 .760 .711 665 .623 .583 547 8. .789 .731 .677 .627 .582 .540 .502 9. .766 .703 .645 .592 .544 .500 460 10 .744 .676 .614 .558 .508 .463 422 11 .722 .650 .585 .527 475 429 .388 12 .701 .625 .557 497 .444 .397 .356 13 .681 .601 .530 469 415 368 326 14 .661 .577 .505 442 .388 340 299 15 .642 .555 .481 417 .362 .315 .275 16 .623 .534 458 .394 .339 .292 .252 17 .605 .513 436 371 .317 .270 231 18 .587 494 416 350 .296 .250 .212 19 .570 475 .396 .331 .277 .232 .194 20 .554 456 .377 312 .258 .215 .178 Periods 10% 11% 12% 13% 14% 15% 20% .909 .901 .893 .885 .877 .870 .833 .826 .812 .797 783 .769 .756 .694 751 .731 .712 .693 .675 .658 .579 4 .683 .659 .636 .613 .592 .572 482 .621 .593 .567 543 .519 497 402 6. 564 .535 .507 480 456 432 .335 7. .513 482 452 425 400 376 .279 8 467 434 404 .376 351 327 .233 .424 391 .361 333 308 284 .194 10 386 .352 .322 295 270 .247 .162 11 350 317 287 .261 237 H 215 .135
Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. Use Appendix A. Required: a. Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate. Calculate the net present value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate. (Do not round intermediate computations. Round your final answer to the nearest whole dollar amount.) NPV of future tax savings 2$ 13,125 b. Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss limitations do not apply. Current year tax savings
Transcribed Image Text:Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. Use Appendix A. Required: a. Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate. Calculate the net present value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate. (Do not round intermediate computations. Round your final answer to the nearest whole dollar amount.) NPV of future tax savings 2$ 13,125 b. Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grant's marginal tax rate is 35 percent and Marvin's marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss limitations do not apply. Current year tax savings
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