Manny, a calendar year taxpayer, uses the cash method of accounting for his sole proprietorship In late December he performed $34,000 of legal services for a client Manny typically requires his clients to pay his bills immediately upon receipt Assume Mannys marginal tax rate is 40 percent this year and next year, and that he can earn an after tax rate of return of 8 percent on his investments a What is the after tax income if Manny sends his client the bill in December After tax income b What is the after tax income if Manny sends his client the bill in January Use Exhibit 3 1 After tax income EXHIBIT 3 1 Present Value of a Single Payment at Various Annual Rates of Return Year 4 5 6 7 8 9 10 11 12 917 943 890 840 792 935 873 816 842 962 925 889 855 822 790 760 898 797 712 763 636 567 952 907 864 823 784 746 711 677 645 614 747 705 926 857 794 735 681 630 583 540 500 463 429 397 713 666 623 582 544 508 665 627 592 558 772 708 650 596 547 502 460 422 388 731 909 826 751 683 621 564 513 467 424 386 350 319 290 901 812 731 659 593 535 482 434 391 352 317 286 258 232 209 507 452 404 361 322 287 257 229 205 183 527 703 676 650 625 601 577 555 475 585 557 497 469 356 530 444 415 368 505 442 388 326 299 275 263 15 340 315 481 417 362 239

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Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $34,000 of legal services for a

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $34,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Mannys marginal tax rate is 40 percent this year and next year, and that he can earn an after-tax rate of return of 8 percent on his investments.

a. What is the after-tax income if Manny sends his client the bill in December?

After tax income: __________

b. What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1.

After tax income: __________

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EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return Year 4% 5% 6% 7% 8% 9% 10% 11% 12% .917 .943 .890 .840 .792 .935 .873 .816 .842 .962 .925 .889 .855 .822 .790 .760 .898 .797 .712 .763 .636 .567 .952 .907 .864 .823 .784 .746 .711 .677 .645 .614 .747 .705 .926 .857 .794 .735 .681 .630 .583 .540 .500 .463 429 .397 .713 .666 .623 .582 .544 .508 .665 .627 .592 .558 .772 .708 .650 .596 .547 .502 460 .422 388 .731 .909 .826 .751 .683 .621 .564 .513 .467 .424 386 350 .319 .290 .901 .812 .731 .659 .593 .535 .482 .434 .391 352 .317 .286 .258 .232 209 .507 .452 .404 .361 .322 287 .257 .229 .205 .183 .527 .703 .676 .650 .625 .601 .577 .555 475 .585 .557 497 .469 -356 .530 444 415 368 .505 . .442 388 .326 .299 275 .263 15 .340 315 481 417 362 239