Nello Company owed $23,400 overdue rent to its landlord, Bonview Inc. Because Nello is a desirable tenant, Bonview agreed to settle the overdue account for a $15,000 cash payment from Nello. Both Nello and Bonview are accrual basis taxpayers. Required: a. What is the tax consequence to Nello of the settlement of its $23,400 account payable to Bonview? Compute Nello's net cash outflow from the settlement assuming its tax rate is 35 percent. b. What is the tax consequence to Bonview of the settlement of its $23,400 account receivable from Nello? Compute Bonview's net cash inflow from the settlement assuming its tax rate is 21 percent. Complete this question by entering your answers in the tabs below. Required A Required B
Nello Company owed $23,400 overdue rent to its landlord, Bonview Inc. Because Nello is a desirable tenant, Bonview agreed to settle the overdue account for a $15,000 cash payment from Nello. Both Nello and Bonview are accrual basis taxpayers. Required: a. What is the tax consequence to Nello of the settlement of its $23,400 account payable to Bonview? Compute Nello's net cash outflow from the settlement assuming its tax rate is 35 percent. b. What is the tax consequence to Bonview of the settlement of its $23,400 account receivable from Nello? Compute Bonview's net cash inflow from the settlement assuming its tax rate is 21 percent. Complete this question by entering your answers in the tabs below. Required A Required B
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 34P
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Transcribed Image Text:Nello Company owed $23,400 overdue rent to its landlord, Bonview Inc. Because Nello is a desirable tenant, Bonview agreed to settle
the overdue account for a $15,000 cash payment from Nello. Both Nello and Bonview are accrual basis taxpayers.
Required:
a. What is the tax consequence to Nello of the settlement of its $23,400 account payable to Bonview? Compute Nello's net cash
outflow from the settlement assuming its tax rate is 35 percent.
b. What is the tax consequence to Bonview of the settlement of its $23,400 account receivable from Nello? Compute Bonview's net
cash inflow from the settlement assuming its tax rate is 21 percent.
Complete this question by entering your answers in the tabs below.
Required A
Required B
What is the tax consequence to Nello of the settlement of its $23,400 account payable to Bonview? Compute Nello's net
cash outflow from the settlement assuming its tax rate is 35 percent.
Amount
Income recognized
Tax cost
Net cash outflow
Transcribed Image Text:Nello Company owed $23,400 overdue rent to its landlord, Bonview Inc. Because Nello is a desirable tenant, Bonview agreed to settle
the overdue account for a $15,000 cash payment from Nello. Both Nello and Bonview are accrual basis taxpayers.
Required:
a. What is the tax consequence to Nello of the settlement of its $23,400 account payable to Bonview? Compute Nello's net cash
outflow from the settlement assuming its tax rate is 35 percent.
b. What is the tax consequence to Bonview of the settlement of its $23,400 account receivable from Nello? Compute Bonview's net
cash inflow from the settlement assuming its tax rate is 21 percent.
Complete this question by entering your answers in the tabs below.
Required A
Required B
What is the tax consequence to Bonview of the settlement of its $23,400 account receivable from Nello? Compute Bonview's
net cash inflow from the settlement assuming its tax rate is 21 percent.
Amount
Deductible expense
Tax savings
Net cash inflow
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