T12S-Chp-01-5-Prb-Tax-Deferral-Illustration

# T12S-Chp-01-5-Prb-Tax-Deferral-Illustration - Dec 21 2010...

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249c4455f6e580bef2e6d08274299a8855667675.xlsx Page 1 of 1 Illustrative Tax Problems Case 1. Illustration of benefit of deferral of revenue recognition Case 1 Case 2 Send \$5,000 bill to client Dec. 21, 2010 Dec. 29, 2010 Collect \$5,000 from client Dec. 28, 2010 Jan. 7, 2011 Pay tax when return filed Mar. 15, 2011 Mar. 15, 2012 Tax year Tax Year-2010 Tax Year-2011 Revenue from this client \$5,000 \$5,000 Tax rate 25% 25% Tax payment March 15, 2011 1,250 Tax payment March 15, 2012 1,250 P.V. factor - 1 Yr, 10% 0.943 P.V. of tax payment to be made in one year \$1,179 Benefit of deferral of tax \$71.25 Case 2. Illustration of benefit of deferral of revenue recognition Case 3 Case 4 Send \$5,000 bill to client
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Unformatted text preview: Dec. 21, 2010 Dec. 29, 2010 Collect \$5,000 from client Dec. 28, 2010 Jan. 7, 2011 Pay tax when return filed Mar. 15, 2011 Mar. 15, 2012 Tax year Tax Year-2010 Tax Year-2011 Revenue from this client \$5,000 \$5,000 Tax rate 25% 15% Tax payment March 15, 2011 1,250 Tax payment March 15, 2010 750 P.V. factor - 1 Yr, 10% 0.943 P.V. of tax payment to be made in one year \$707 Benefit of deferral of tax and tax rates \$542.75 How much of the benefit of deferral in case 2 is related to tax rates and how much is time value of money? How would your answer change if the tax rate for 2011 will be 30% and the interest rate is 12%....
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