Problem:
Jones, Inc., a calendar-year taxpayer, is in the air conditioner repair business. The business uses the cash method. In December of the current year, Jones charged $100 of supplies at Refrigeration, Inc., (he will pay the credit card bill in January) and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January).
Required:
Question 1: What is the amount that is deductible by Jones, Inc., in the current year?
- $100
- $600
- $700
- The amounts must be capitalized and charged to expense as used.
Note: Be sure to show how you arrived at your answer.