In Order to Protect Against Rent Increases on the Building

question 89

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, 2017. How much of the $36,000 payment can she deduct in 2017 and 2018?
a.If Mella is an accrual basis taxpayer?
b.If Mella is a cash basis taxpayer?

---

Definitions:

Inventory Returns Estimated

An estimate of the value of goods that are anticipated to be returned by customers, used for accounting and inventory management purposes.

Sales Refund Payable

A liability account representing the amount that a company expects to refund to customers for returned products.

Net Method

The net method is an accounting practice where purchase discounts are subtracted upfront from the cost of inventory, leading to the recording of purchases at their net cost if payment is made within a discount period.

Recording Purchases

The process of documenting transactions related to acquiring goods or services, essential for accurate financial reporting and inventory management.