Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

A. $48,000 for the rent and $18,000 for the insurance. B. $24,000 for the rent and $18,000 for the insurance. C. $24,000 for the rent and $9,000 for the insurance. D. $48,000 for the rent and $9,000 for the insurance. E. None of these is true.

Question

Gracelyn

Mathematics

27 December, 12:06

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

A. $48,000 for the rent and $18,000 for the insurance. B. $24,000 for the rent and $18,000 for the insurance. C. $24,000 for the rent and $9,000 for the insurance. D. $48,000 for the rent and $9,000 for the insurance. E. None of these is true.

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Answers (1)

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Yuliana Solomon · Answer 1

B. $24,000 for the rent and $18,000 for the insurance.

Step-by-step explanation:

Accrual method is a way of recording accounting transactions for revenue based on the time when they are earned and when the expenses are incurred.

Here, in the given scenario, $24,000 is accrued or $2000 per month is accrued.

The payment for insurance or rent spans for 2 time periods. That is six months this year and six months next year.

We know that insurance is a type of payment liability and accrues only when its paid.

So, he answer here will be option B.