Rebecca is a calendar-year taxpayer who operates a business. She made the follow

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.)

a. $1,500 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. $4,700 for new office furniture. The furniture was delivered on June, 15, year 1.

c. $3,100 for property taxes payable on her factory.

d. $2,280 for interest on a short-term bank loan relating to the period from December 1, year 0, through March 31, year 1

Explanation / Answer

CALCULATION OF DEDUCTIBLE AMOUNT UNDER CASH METHOD AND ACCRUAL METHOD SR. NO. PARTICUALRS CASH METHOD ACCRUAL METHOD Remarks A) Cash Given in december but work done in next year $                   1,500 $                                 -   Under Accrual method it will ne shown as advance asn expenditure will be for next year B) Cash Given in december but supply is done in next year $                   4,700 $                                 -   Under Accrual method it will ne shown as advance asn expenditure will be for next year C) Expenses of the year and paid in next year $                   3,100 $                                 -   This is payable for earlier period so not deductible in accrual method D) Interest on loan $                   2,280 $                             570 Under accrual method interest allowed = $ 2,280 / 4 years = $ 570 Total $                 11,580 $                             570

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