Taylor,a Cash Basis Architect,rents the Building in Which His Office

question 135

Essay

Taylor,a cash basis architect,rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1,2011.In order to guarantee no rent increases during an 18-month period,he signed an 18-month lease and prepaid the $90,000 on February 1,2011.How much can Taylor deduct as rent expense for 2011?

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Definitions:

Bonus Method

An accounting method for recording partner investments and distributions where the new partner's capital is adjusted to reflect any bonus given to or received from the existing partners, affecting the capital accounts but not the reported income of the partnership.

Capital Balance

Capital balance refers to the amount of funds in an account or that an individual or company has invested, typically represented on the balance sheet as equity or net worth.

Bonus Method

An accounting method used in partnership accounting to reallocate partners' equity accounts when a new partner is admitted without changing the recorded values of the actual assets.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a basis for computing rates of return and evaluating its capital structure.