Rebecca is a calendar-year taxpayer who operates a business. She made the follow
ID: 2424017 • Letter: R
Question
Rebecca is a calendar-year taxpayer who operates a business. She made the following business-related expenditures in December of year 0.
Indicate the amount of these payments that she may deduct in year 0 under both the cash method of accounting and the accrual method of accounting. (Leave no answers blank. Enter zero if applicable.)
$2,000 for an accountant to evaluate the accounting system of Rebecca’s business. The accountant spent three weeks in January of year 1 working on the evaluation.
b
$2,500 for new office furniture. The furniture was delivered on January 15, year 1.
c.
$3,000 for property payable taxes on her factory.
d.
Rebecca is a calendar-year taxpayer who operates a business. She made the following business-related expenditures in December of year 0.
Explanation / Answer
ANSWER A:-
$2000 under cash method.Likely $ 2000 under accrual method.She paid for the service in advance & as long as she resonably expects that the job would finish within 3.5month from the date of payment, she can treat it as economic performance. Since Rebecca here, had made the payment in the month of december and the accountant provided the services a month later, it is likely that she would qualify for deduction in year 0. Otherwise she would require to deduct $2000 in year 1, when the accountant actually provided the service.
ANSWER B:-
$0 under both cash and accrual method.Here, economic performance takes place as and when the goods are provided to her. The asset is expected to provide benefit to here for more than 12 months, she must capitalize it and she can begin to depreciate the expenditure from year 1 when she actually puts it to use.
ANSWER C:- 1500 * 2months/5months= $ 600
$ 600 (for Novemeber and December) under both cash and accrual method.
Taxes are a laibility & are deductible only when paid. Hence $ 3000 under both cash and accrual methods.
ANSWER D:-
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