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On November 1 of this year, Jaxon borrowed $32,000 from Bucksnort Savings and Loan for use in his business. In December, Jaxon paid interest of $2,880 relating to the 12-month period from November of this
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On November 1 of this year, Jaxon borrowed $32,000 from Bucksnort Savings and Loan for use in his business. In December, Jaxon paid interest of $2,880 relating to the 12-month period from November of this year through October of next year.

A. How much interest, if any, can Jaxon deduct this year if his business uses the cash method of accounting for tax purposes?
B. How much interest, if any, can Jaxon deduct this year if his business uses the accrual method of accounting for tax purposes?

User Stephan Tittel
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1 Answer

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23 votes

Answer:

Jaxon

A. If the business uses the cash method of accounting for tax purposes, the interest to be deducted this year is $2,880.

B. If the business uses the accrual method of accounting for tax purposes, the interest to be deducted this year is $480 (for November and December).

Step-by-step explanation:

a) Data and Calculations:

Amount borrowed from Bucksnort Savings and Loan = $32,000

December 31, Interest paid for 12 months starting from November this year through October of next year = $2,880

Monthly interest expense = $240 ($2,880/12)

Interest expense for November and December = $480 ($240 * 2)

User Dudi
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