Question

QUESTION 1 Colbert operates a catering service since 2015. In November, 2018 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1, 2018 through June 1, 2020. REQUIRED: When must Colbert recognize the income if: a) He uses the accrual method of accounting b) He uses the cash method of accounting [2 Marks) QUESTION 2 Smith operates a roof repair business. This year Smith's business generated cash receipts of $32,000 and Smith made the following expenditures associated with his business: Advertising S500 Car and truck expenses 1,360 Depreciation Employee compensation 5,000 Education 1.000 3.200 The education expense was for a two-week, nighttime course in business management. Smith believes the expenditure should qualify as an ordinary and necessary business expense. Smith is on the cash method and calendar year. REQUIRED: How much deductible business expenses should Smith report from his business? [2 Marks)

Answer 1

Answer for question 1 and 2 are provided.

Ansi I. a) Accraecel method: Income to recognise - $9000 xo1 _=$500_ __ __ 18 __ Income for month of december 2018 is only to be recognised this year b) Cash method Income is recognised in statement of profit & Loss in the year of receipt in cash method, hence & gooo @ill be recognised as income Ans.2 Deductible business. cocpenses Advertising car & truck eops Depreciation Employee compenscetion soo. 1360 3200 sooo $_10060 Note; l)care truck_assumed as reed 32 Scanhed with cosholly for bzesiness peerposer sa CamScanner