Amy Borrowed $25,000 for Her Business from a Local Bank

question 25

Multiple Choice

Amy borrowed $25,000 for her business from a local bank two years ago. To increase her deductions for 2014, she pays December interest of $400 and prepays January and February interest totaling $800 on December 30, 2014. The maturity date of the note is November 30, 2015. How much of the interest that she paid in December is deductible in 2014? I. If she is a cash-basis taxpayer, Amy's interest deduction is $1,200. II. If she is an accrual-basis taxpayer, Amy's interest deduction is $400.

• A) Only statement I is correct.
• B) Only statement II is correct.
• C) Both statements are correct.
• D) Neither statement is correct.

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Definitions:

Cult of Domesticity

A value system among the upper and middle classes during the 19th century in the United States and Great Britain that emphasized new ideals of femininity, piety, and the role of women as keepers of the home.

Industriousness

The quality of being hard-working and diligent, often leading to increased productivity and achievement.

Federal Government

The national government of a federation, responsible for areas of governance designated to the national level by the constitution.

World War II

A global conflict that lasted from 1939 to 1945, involving most of the world's nations and marked by significant battles and events shaping modern history.