Joe Is a Self-Employed Electrician Who Operates His Business on the Accrual

question 19

Multiple Choice

Joe is a self-employed electrician who operates his business on the accrual method. This year Joe purchased a shop for his business, and for the first time at year-end he received a bill for $4,500 of property taxes on his shop. Joe didn't pay the taxes until after year-end but prior to filing his tax return. Which of the following is a true statement?

• A)If he elects to treat the taxes as a recurring item, Joe can accrue and deduct $4,500 of taxes on the shop this year.
• B)The taxes are a payment liability.
• C)The taxes would not be deductible if Joe's business was on the cash method.
• D)Unless Joe makes an election, the taxes are not deductible this year.
• E)All of the choices are true.

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Definitions:

Quick Ratio

A financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets.

Current Ratio

A liquidity measure indicating a company’s ability to meet short-term obligations with its short-term assets.

Decimal Place

A position to the right of a decimal point in a number, representing a fraction of a whole.

Inventory Turnover

A financial ratio that measures how many times a company has sold and replaced its inventory over a certain period of time.