Question

Questiul 3 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 displaying 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 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?

Answer 1

Answer * Under an accural method of accounting - You generally report income in the year atij vinad ond clochuckers (Corso * Capilalize el panges or the yean Presoured The purpose of an acewal of a crocenting to malch encome and Expenses in the owoct your Scanned with CamScanner

* 2,000 14,000 → Equipment required » Othere pair expense > Accural for maintenance Contract 10,000 Total Deduction = 26,000 * under an accwal method of accounting you gonerally deduct (or) * Capitalize a business Expense when - both the following apply. * The all-events test has been met 1. The test meet when. * occurred the All Events have that fix fact of liability. → The liability can be deformi nad with reasonable accuracy. * Econamic porformance has occurred. In view of above poinciples The expense of 10000 for 3 years maintar CS Scannezance allowable Qjan Expense in 2019 CamScanner

Answer 2

Answer:

For prepaid expense if 12 months rules apply then prepaid expense can be deducted in the current period. In this case
Prepaid Interest expense is deductible = $4000
Prepaid rent expense is deductible =$8000
Cash was paid in the next year = -
Deductible business expenses Julie's Tax prep may deduct in 2019 =$12000