Question

In: Economics

TR Corporation prepaid the rent related to their office building. $36,000 was paid on October 1,...

TR Corporation prepaid the rent related to their office building. $36,000 was paid on October 1, 2020. None of the prepayment was for 2020. The prepayment covered the rent for the year from January 1, 2021 through December 31, 2021. Assume TR Corporation used the cash method of accounting. You are to indicate the amount TR Corporation may deduct on its 2020 and 2021 tax return.

2020 Deduction = ______________________________

2021 Deduction = ______________________________

Assume the same facts as indicated in problem #1 except that the corporation used the accrual method of accounting. Answer the question again using the revised facts.

2020 Deduction = ______________________________

2021 Deduction = ______________________________

On November 1, 2020 RX Corporation prepaid the premium of a business insurance policy. The prepayment was $50,000. The period of time covered by the insurance policy was January 1, 2021 through December 31, 2021. Assume RX Corporation used the cash method of accounting. You are to indicate the amount RX Corporation may deduct on its 2020 and 2021 tax return.

2020 Deduction = ______________________________

2021 Deduction = ______________________________

Assume the same facts as in problem #3 above except that the corporation used the accrual method of accounting. Answer the question again using the revised facts.

2020 Deduction = ______________________________

2021 Deduction = ______________________________

Solutions

Expert Solution

Answer :

2020 Deduction = 36000 $

Because the accounting is adopted on cash basis . Mean allowed to deduct in year when cash is paid for

2021 Deduction =...........N/A

Because nothing is deducted in the year when the amount is actually due as it is cash method .

Assume the same facts as indicated in problem #1 except that the corporation used the accrual method of accounting. Answer the question again using the revised facts.

2020 Deduction =N.A

Because the accounting is adopted onAccrual basis . Mean allowed to deduct in year when Actual amount is due .

2021 Deduction = $36000

Because the accounting is adopted onAccrual basis . Mean allowed to deduct in year when Actual amount is due .

2020 Deduction = $50000

Because the accounting is adopted on cash basis . Mean allowed to deduct in year when cash is paid for

2021 Deduction =N.A

Because the accounting is adopted on cash basis . Mean allowed to deduct in year when cash is paid for

Assume the same facts as in problem #3 above except that the corporation used the accrual method of accounting. Answer the question again using the revised facts.

2020 Deduction = N/A

Because the accounting is adopted onAccrual basis . Mean allowed to deduct in year when Actual amount is due .

2021 Deduction = $50000

Because the accounting is adopted onAccrual basis . Mean allowed to deduct in year when Actual amount is due .

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Rahul Sunny answered 1 year ago

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