Question

On Dec. 15, 2019, Julia’s Service Station, an accrual method taxpayer, prepaid $4,000 worth of deductible interest on a business loan. The interest won’t accrue until 2020. Julia’s Service Station will be displayed for the first time at a trade show in July 2020. On Dec. 16, 2019, Julia’s prepaid the $8,000 trade show booth rental expense. The payment isn’t due until May 2020, and the use of the booth will occur in July 2020. In addition, On Dec. 28, 2019, Ed’s Equipment repaired some equipment in Julia’s business and billed Julia’s $2,000. Julia’s received the invoice on Dec. 28, 2019, and paid the $2,000 invoice on Jan. 29, 2020. How much of the $14,000 in deductible business expenses may Julia’s Service Station deduct in 2019?

The answer is not 12000 see the same problem that was posted with 12000 is incorrect.

Answer 1

Answer According to the given data able to deduct Service station would be maintenance expense of 26000 Equipment repaired 2000 Other repair expense 14,000 Accural for Maintenance contract 10,000 Total deduction 26,000 the accounting under accural method you ally report income in the year it earned and deduct the capitalize expenses in the year incurred. The main purpose of an accural method of accoun- ting is to match income and expenses in year (corred) - Under accural method both the you generally deduct business following apply. expense when 1 The all events test has been met. It is met When a occured that fix the fact of All events liability, have and

b. The liability accuracy. can be determined with reasonable 2. Economic performance has occured. So in the view of above Principles the contract is expense of allowable 10ood as an for 3 year maintenana expense in 2019.