Question

9.In January of year 0, Justin paid $9,000 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. Assume the insurance policy is for a 24-month period from April 1, year 0 through March 31, year 2. What amount of the insurance premium may Justin deduct in year 0?

10.In October of year 0, Janine received a $5,000 payment from a client for 25 months of security services she will provide starting on November 1 of year 0. This amounts to $200 per month. What amount of revenue must Janine recognize in year 0 from the $5,000 advance payment for services if she uses the cash method of accounting?

11.In October of year 0, Janine received a $5,000 payment from a client for 25 months of security services she will provide starting on November 1 of year 0. This amounts to $200 per month. What amount of revenue must Janine recognize in year 1 from the $5,000 advance payment for services if she uses the accrual method of accounting?

Answer 1

9.Jutin will deduct $ 9,000 in year 0 because in cash method of accounting all cash paymnet treated as expenses in the period in which they paid.

10. Justin will recognise entire $ 5,000 as revenue in year 1 beacuse as per cash accounting all revenue must recognise in the period in which they received.

11. As per accural method of accounting revenue must be recognised when it will incurred or performed not when received so Justin will recognise 1,200 in year 1 from advance revenue received.(200 * 12)