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

Deductible Amount
Cash method
Accrual method

Answer 1

	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