Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction?
I.Beth will recognize rent income in 2017.
II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017.

Question

Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction?
I.Beth will recognize rent income in 2017.
II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017.
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Quizplus · Accepted Answer

Statement I is correct because Beth is an accrual basis taxpayer, which means that income is recognized when it is earned, regardless of when it is actually received. In this case, the January 2018 rent was earned in December 2017 when the renter paid it.

Statement II is correct because the wherewithal-to-pay concept requires that income be recognized in the year in which the taxpayer has the ability to pay the tax on that income. In this case, Beth received the rent payment in December 2017, which means she has the ability to pay the tax on that income in 2017. Therefore, she must recognize the income in 2017.

Beth Is an Accrual Basis Taxpayer