Mr and Mrs

question 76

Multiple Choice

Mr. and Mrs. Dean own an investment that generated $60,000 cash revenue and required $12,000 cash expenses this year. The Deans' marginal tax rate is 25%. Which of the following statements is true?

• A) If only $52,000 of the revenue is taxable, but all the expenses are deductible, the Deans' after-tax cash flow is $40,000.
• B) If the revenue is taxable, but only $8,500 of the expenses are deductible, the Deans' after-tax cash flow is $38,625.
• C) The Deans' before-tax cash flow is $48,000.
• D) Both if the revenue is taxable, but only $8,500 of the expenses are deductible, the Deans' after-tax cash flow is $38,625 and the Deans' before-tax cash flow is $48,000.

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Definitions:

Premium Amortization

The process of gradually expensing the premium paid above a bond's face value over the remaining life of the bond.

Effective-interest Method

The effective-interest method is a technique used in amortizing the discount or premium on bonds payable, where the interest expense recorded over time corresponds to the bond's carrying value.

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds, recognized on the income statement.

Anthropocentric

Pertaining to the belief that human beings are the central or most significant species on the planet, often regarding nature and environment from a human-centered perspective.