During 2019 and 2020,Danny Pays Property Taxes of $3,500 Each

question 51

Multiple Choice

During 2019 and 2020,Danny pays property taxes of $3,500 each year on a piece of land.During 2019,the land is vacant and unproductive.In 2020,Danny uses the land as a parking lot and generates $16,000 in income.Which of the following is true regarding the property taxes?

• A)Capitalize $3,500 each year.
• B)Deduct $3,500 each year.
• C)Capitalize $3,500 in 2019 and deduct $3,500 in 2020.
• D)Either B or C is acceptable.

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Definitions:

Prepaid Expense

Expenses paid in advance for goods or services to be received in the future, recorded as an asset on the balance sheet until consumed.

Accrued Liabilities

Expenses that have been incurred but not yet paid or recorded in the company's ledger, representing future outflows of cash.

Common Stock Account

An equity account on a company's balance sheet representing the total value of common shares that have been issued.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition and net worth.