Question

Bob uses the cash method of accounting. During the tax year (calendar year), he had the following income and expenses:  Interest on a savings account (credited to his account on January 2 of next year) $ 68  Dividend received from Virginia Credit Union $814  Interest received on a 5-year certificate of deposit (left in CD account to compound) $910  Penalty on the early withdrawal of the 5-year certificate of deposit $ 50 What is the amount of interest income Bob must report for the current tax year?

Answer 1

$814

Step-by-step explanation:

When individuals or small firms use cash accounting, they will record any expenses or revenue when they are actually paid for or collected respectively.

In this case, Bob must record:

• Dividend received from Virginia Credit Union $814

Interests received on January 2, of next year are not included (they are included in next year's tax return). Interest received on a 5-year certificate of deposit (left in CD account to compound) is not included because it was earned before this year and left in CD to compound. The penalty for early withdrawal is associated with the CD, so it is not included.