Register
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
127,183 views
4 votes
4 votes
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
by
2.6k points

1 Answer

23 votes
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
by
3.2k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
The market value of the equity of Hudgins, Inc., is $582,000. The balance sheet shows $21,000 in cash and $192,000 in debt, while the income statement has EBIT of $93,000 and a total of $137,000 in depreciation
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be
In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend
Link Copied!