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Clyde operates a sole proprietorship using the cash method. This year Clyde made the following expenditures: $480 to U.S. Bank for 12 months of interest accruing on a business loan from September 1 of this year through August 31 of next year even though only $160 of interest accrued this year. $600 for 12 months of property insurance beginning on July 1 of this year. What is the maximum amount Clyde can deduct this year? Multiple Choice
1. $760
2. $600
3. $480
4. $160
5. $360

Respuesta :

letmeanswer

1 - $760 is correct answer

Explanation:

The Interest is deducted proportionately (ratably) and therefore the interest of 4 months of this year is deductible

The interest is calculated as follows:  – ($480 divide by 12) multiply with 4 months = $160

The 12-month rule that applies to insurance and thus the full amount of insurance is deductible.

Therefore, the Maximum deduction is = $160 interest + $600 insurance which is equal to  $760

Therefore, as per the above calculations, the correct multiple choice is A  ( $760 ).

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