Question

Christopher is a cash-method, calendar-year taxpayer, and he
made the following cash payments related to his business this
year.

Calculate the after-tax cost of each payment assuming he has a 30
percent marginal tax rate. **(Do not round intermediate
calculations and round your final answer to the nearest dollar
amount.)**

**b.** $700 of interest on a short-term loan
incurred in September and repaid in November. Half of the loan
proceeds were used immediately to pay salaries and the other half
was invested in municipal bonds until November.

**c.** $1,055 for office supplies in May of this
year. He used half of the supplies this year and he will use the
remaining half by February of next year.

**d.** $830 for several pairs of work boots.
Christopher expects to use the boots about 80 percent of the time
in his business and the remainder of the time for hiking. Consider
the boots to be a form of clothing.

Answer #1

**Solution:-**

**b. $700 of interest on a short-term loan incurred in
September and repaid in November. Half of the loan proceeds were
used immediately to pay salaries and the other half was invested in
municipal bonds until November:-**

After-tax cost - $595

**Explanation:-**

$595 = $700 × [1 - (0.5 × 0.3)] - half of the interest is not deductible.

**c. $1,055 for office supplies in May of this year. He
used half of the supplies this year and he will use the remaining
half by February of next year:-**

After-tax cost - $739

**Explanation**:-

$739 = $1,055 × (1 - 0.3) - all deductible since used within the next year.

**d. $830 for several pairs of work boots. Christopher
expects to use the boots about 80 percent of the time in his
business and the remainder of the time for hiking. Consider the
boots to be a form of clothing:-**

After-tax cost - $830

**Explanation:**

$830 - not deductible.

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