Mike Started a Calendar-Year Business on September 1 ^st of This

question 90

Multiple Choice

Mike started a calendar-year business on September 1 ^st of this year by paying 12 monthsof rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

• A)$12,000 under the cash method and $12,000 under the accrual method
• B)$4,000 under the cash method and $12,000 under the accrual method
• C)$12,000 under the cash method and $4,000 under the accrual method
• D)$4,000 under the cash method and $4,000 under the accrual method
• E)$4,000 under the cash method and zero under the accrual method

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Definitions:

Compounded Annually

The process of calculating interest and adding it to the principal sum of a deposit or loan once per year.

Interest Rate

The rate at which interest is paid by borrowers for the use of money that they borrow from lenders.

Pension Fund

A type of investment pool typically set up by an employer to generate stable growth over the long term and provide pensions for employees when they reach the end of their working years.

Quarterly Payments

Quarterly payments are payments made four times a year, often used in the context of dividend distributions to shareholders or in loan repayments.