Question

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

A. $48,000 for the rent and $18,000 for the insurance.B. $24,000 for the rent and $18,000 for the insurance.C. $24,000 for the rent and $9,000 for the insurance.D. $48,000 for the rent and $9,000 for the insurance.E. None of these is true.

Answer 1

B. $24,000 for the rent and $18,000 for the insurance.

Explanation:

Accrual method is a way of recording accounting transactions for revenue based on the time when they are earned and when the expenses are incurred.

Here, in the given scenario, $24,000 is accrued or $2000 per month is accrued.

The payment for insurance or rent spans for 2 time periods. That is six months this year and six months next year.

We know that insurance is a type of payment liability and accrues only when its paid.

So, he answer here will be option B.