Question

b. The expenditure is a prepayment for 18 months of cleanin from November 2018 through April 2020? 14. Warren Company is a calendar year, cash basis firm. On Dece 2018, Warren paid $7,200 cash to a landscape service busine maintains the lawns and gardens around Warren's headquart much of this expenditure can Warren deduct in 2018 assumir a. The expenditure is a prepayment for four months of lands maintenance beginning May 1, 2019? b. The expenditure is a prepayment for 12 months of landsci maintenance beginning May 1, 2019? 15. Firm F, a calendar year taxpayer, owes a $200,000 long-tern unrelated creditor. In December, it paid $14,160 to the credit for the 12-month period from the prior September 1 through the following year. Compute the deduction for this payment a that: a. Firm Fuses the cash method of accounting for tax purpos b. Firm Fuses the accrual method of accounting for tax pury 16. Wahoo Inc., a calendar year taxpayer, leases equipment to ac $4,500 monthly rent. On November 27, 2018, Wahoo receive rent payment for the eight-month period beginning on Decem much of the payment must Wahoo recognize as 2018 taxable assuming that: a. Wahoo uses the cash method of accounting for tax purpos b. Wahoo uses the accrual method of accounting for tax purp 17. EFG, an accrual basis calendar year corporation, reported $5 income before tax on its financial statements prepared in acc GAAP. EFG's records reveal the following information: • Page 6-33 The allowance for bad debts as of January 1 was Write-offs for the year totaled $13,800, and the addition t allowance for the year was $12,500. The allowance as of was $56,700. • EFG paid a $17,500 fine to the state of Delaware for a viol pollution control laws. EFG was sued by a consumers group for engaging in false practices. Although nollosa n ad that the

Answer 1

14.

a. Deduction in 2018 assuming that the expenditure is a prepayment for four months of landscape maintenance beginning May 1, 2019 = $ 7,200 x 4/12 = $ 2,400

b. Deduction in 2018 assuming that the expenditure is a prepayment for 12 months of landscape maintenance beginning May 1, 2019 = $ 7,200

15. Firm F owes a $200,000 long-term debt to an unrelated creditor.

In December, Firm F paid for the 12-month period from the prior September 1 through August 31 of the following year = Interest expense paid to creditor = $14,160

September 1 to December 31 = 4 Months

We have to compute the deduction for the payment using cash method of accounting and accrual method of accounting.

a. Under the cash method-

Deduction = Interest expense paid to creditor × (*number of months ÷ total number of months in a year)

= $14,160 × (4 months ÷ 12 months)

= $4,720

b. Under the accrual method-

Deduction = Interest expense paid to creditor × (*number of months ÷ total number of months in a year)

= $14,160 × (4 months ÷ 12 months)

= $4,720

16.

a. Under the cash method of accounting,

Wahoo Inc. must recognize the entire $36,000 rent payment as 2X18 taxable income.

b. Under the accrual method of accounting,

Wahoo Inc. must recognize the entire $36,000 rent payment as 2X18 taxable income.

Question No.17 is incomplete. It has not given what is to be computed.