55. In July of this year, Stephen started a proprietorship called ECR (which stands for electric car repair). ECR uses the cash method of accounting and Stephen has produced the following financial information for this year:

completed during the year and an additional $3,200 in cash for repairs that will commence after yearend.
Customers owe ECR $14,300 for repairs completed this year, and while Stephen isn’t sure which bills will eventually be paid, he expects to collect all but about $1,900 of these revenues next year.
ECR has made the following expenditures:
Interest expense $
1,250 Shop rent ($1,500 per month)
27,000 Utilities 1,075 Contract labor 8,250 Compensation 21,100 Liability insurance premiums ($350 per month)
4,200 Term life insurance premiums ($150 per month)
1,800 The interest paid relates to interest accrued on a $54,000 loan made to Stephen in July of this year. Stephen used half of the loan to pay for 18 months of shop rent, and the remainder he used to upgrade his personal wardrobe. In July, Stephen purchased 12 months of liability insurance to protect against liability should anyone be injured in the shop.
ECR has only one employee (the remaining workers are contract labor), and this employee thoroughly understands how to repair an electric propulsion system.
On November 1 of this year, Stephen purchased a 12-
month term-life policy that insures the life of this “key”
employee. Stephen paid Gecko Insurance Company $1,800; in return, Gecko promises to pay Stephen a $40,000 death benefit if this employee dies any time during the next 12 months.
Fill out a draft of the front page of Stephen’s Schedule C.
56. Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services at the first of each month. The bills are due by the end of the month, and typically 70 percent of the bills are paid on time and 98 percent are paid within 60 days.

a. Suppose that Nicole is expecting a 2 percent reduction in her marginal tax rate next year. Ignoring the time value of money, estimate the tax savings for Nicole if she postpones mailing the December bills until January 1 of next year.

b. Describe how the time value of money affects your calculations.

c. Would this tax savings strategy create any additional business risks? Explain.