Firm F, a calendar year taxpayer, owes a $270,000 long-term debt to an unrelated creditor. In...
Firm F, a calendar year taxpayer, owes a $270,000 long-term debt
to an unrelated creditor. In December, it paid $18,900 to the
creditor as interest for the 12-month period from the prior
September 1 through August 31 of the following year.
- Compute the deduction for this payment assuming that Firm F uses the cash method of accounting for tax purposes.
- Compute the deduction for this payment assuming that Firm F uses the accrual method of accounting for tax purposes.
Homework Answers
Ans:
A). Even as a cash basis Taxpayer , Firm can deduct only $ 6,300 of the interest payment ( the interest calculated from September to December 31).
B). $6,300 (no difference)
Interest= 18,900*4/12
= 6,300
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