Prepaid Expenses
Response to the following :
1. On August 1, 2014, a sole proprietor pays $24,000 for two years' rent.
a. How much of the $24,000 can be deducted in 2014 if the cash method is used?
b. How much of the $24,000 can be deducted in 2014 if the accrual method is used?
2. Prepaid Expenses
A sole proprietor who operates a warehouse purchases insurance for his building and equipment in three-year increments to get a good insurance premium rate. The insurance policy was acquired on October 1, 2012, for $4,800 and will be in effect until September 30, 2015. The premium on this policy was paid on July 1, 2012.
a. Compute the amount of insurance premium that can be deducted on Schedule C in 2012-2015, assuming the taxpayer uses the cash method of accounting.