In Order to Protect Against Rent Increases on the Building

question 28

Essay

In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $36,000.The lease commences on October 1,2015.How much of the $36,000 payment can she deduct in 2015 and 2016?
a.If Mella is an accrual basis taxpayer?
b.If Mella is a cash basis taxpayer?

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Definitions:

Temporary Difference

A difference between the carrying amount of an asset or liability in the balance sheet and its tax base, which will result in taxable or deductible amounts in the future.

Book Income

The income of a business as reported in its financial statements, using the accounting methods and standards specified by the relevant authority.

Deferred Tax Liability

A tax obligation that a company owes but is not required to pay until a future date.

Warranty Expense

Costs that a company incurs to repair, replace, or compensate for faulty products during the warranty period.