Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?
A) $12,000 under the cash method and $12,000 under the accrual method.
B) $4,000 under the cash method and $12,000 under the accrual method.
C) $12,000 under the cash method and $4,000 under the accrual method.
D) $4,000 under the cash method and $4,000 under the accrual method.
E) $4,000 under the cash method and zero under the accrual method.

Question

Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?
A) $12,000 under the cash method and $12,000 under the accrual method.
B) $4,000 under the cash method and $12,000 under the accrual method.
C) $12,000 under the cash method and $4,000 under the accrual method.
D) $4,000 under the cash method and $4,000 under the accrual method.
E) $4,000 under the cash method and zero under the accrual method.

Quizplus · Accepted Answer

Mike can deduct 12 months of rent under the cash method by applying the 12-month rule whereas only 4 months of rent will accrue because economic performance occurs ratably.

Mike Started a Calendar Year Business on September 1ˢᵗ of This