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:

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Stock Dividend

A distribution of shares of stock to its stockholders.

Statement of Cash Flows

A financial statement showing the inflows and outflows of cash within a company over a specific period.