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Mr. Ohno owns and operates a part-time service business that generates $80,000 annual taxable income. His federal tax rate on this income is 17%. Because of recent legislation, this rate will increase to 25% next year.
A. Based on a static forecast, how much additional revenue will the federal government collect from Mr. Ohno next year?
A. The federal government will collect $6,400 additional revenue ($80,000 * 8% rate increase).
B. How much additional revenue will the federal government collect if Mr. Ohno decides to work fewer hours and consequently earns only $50,000 next year?
B. The federal government will collect $1,100 less revenue ([$50,000 * 25%] - [$80,000 * 17%]).
Functional Currency
The currency of the primary economic environment in which an entity operates, used in its financial reporting.
Reporting Entity
An entity for which there are users who rely on its financial statements for information about its economic activities.
Financing
The act of providing funds for business activities, making purchases, or investing, including methods such as loans, equity investment, and other mechanisms of raising capital.
Presentation Currency
The currency in which financial statements are presented by a company.
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