Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) th

Question

Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) the accrual basis for each of the following:
a. In May 2017, Mary paid a license fee of $1,200 for the period June 1, 2017, through May 31, 2018.
b. In December 2017, Mary collected $10,000 for January 2018 rents. In January 2018, Mary collected $2,000 for December 2017 rents.
c. In June 2017, Mary paid $7,200 for an office equipment service contract for the period July 1, 2017, through December 31, 2018.
d. In June 2017, Mary purchased office furniture for $273,000. She paid $131,000 in cash and gave a $142,000 interest-bearing note for the balance. The office furniture has an MACRS cost recovery period of seven years. Mary did not make the § 179 election and elected not to take additional first-year depreciation.

Explanation / Answer

a. Under the both cash basis and accrual basis, license fee of $1,200 is deductible for the year 2017 because it is paid for one year

b. 1) Under the both cash basis and accrual basis, prepaid rental income of $10000 will be reported in 2017.

2) But for accrual tax basis,Mary collected $2,000 as rent for December 2017 rent in January 2018 must be reported in December 2017 year's rent

c.  Under the both cash basis and accrual basis, only 6 months of capital and amortisation expense will be recorded for the year 2017 out of 18 months (July 1, 2017 to December 31, 2018).Therefore $2400 [$7200 / 18 months *6 months] will be recorded in 2017 and remaining of capital and amortisation expens that is $4800 [7200 /18 months*12 months]will be recorded in 2018

d. MACR depreciation rate for seven year property for 1st year is 14.29%.Under the both cash basis and accrual basis, MACRS cost recovery deduction for 2017 year will be $39012 [14.29% * $273000 office furniture]

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