Mike Started a Calendar Year Business on September 1^st of This

question 41

Multiple Choice

Mike started a calendar year business on September 1^st of this year by paying 12 months' rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

• A) $12,000 under the cash method and $12,000 under the accrual method.
• B) $4,000 under the cash method and $12,000 under the accrual method.
• C) $12,000 under the cash method and $4,000 under the accrual method.
• D) $4,000 under the cash method and $4,000 under the accrual method.
• E) $4,000 under the cash method and zero under the accrual method.

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Definitions:

Actual Sales Price

The price at which goods or services are actually sold, which may vary from the list or expected price.

Budgeted Sales Price

Projected price at which a product is expected to be sold, used in financial planning and analysis.

Standard Costs

Pre-determined or estimated costs to perform an operation, produce a product, or offer a service, used as a basis for pricing and budgetary control.

Work In Process Inventory

Items that are partially completed in a manufacturing process but are not yet finished goods.