In Which of the Following Circumstances Would a Cash Basis

question 122

Multiple Choice

In which of the following circumstances would a cash basis taxpayer be required to account for an item of income or deduction under the accrual method of accounting?

• A)Alice receives advance payment for services that she will perform and complete by the end of the following tax year.
• B)Ben paid his business property taxes at year-end even though they were not due until the end of January.
• C)Cheryl received six months of pre-paid rent on her rental property just before the end of the year.
• D)Donald prepaid a one-year service contract on his copy machine just before year-end.
• E)A cash basis taxpayer will not be required to use the accrual basis method of accounting in any of the above circumstances.

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Definitions:

Break-Even Point

The point at which total costs and total revenues are equal, resulting in no net loss or gain for a business.

Shutdown Point

The level of output and price at which a company's revenue just covers its variable costs, below which the company would lose more money if it continued to operate.

Short Run

A period in economic analysis where at least one input is fixed and cannot change, influencing decision-making and production.

Long Run

An economic period sufficiently long enough to allow all inputs or factors of production to be varied or adjusted, as opposed to the short run where some inputs are fixed.