AICPA CPA-Regulation Exam - Topic 1 Question 5 Discussion

Actual exam question for AICPA's CPA-Regulation exam

Question #: 5
Topic #: 1

On December 1, 1992, Michaels, a self-employed cash basis taxpayer, borrowed $100,000 to use in her business. The loan was to be repaid on November 30, 1993. Michaels paid the entire interest of $12,000 on December 1, 1992. What amount of interest was deductible on Michaels' 1993 income tax return?

A$12,000

B$11,000

C$1,000

D$0

Show Suggested Answer

Suggested Answer: B

Choice "b" is correct. Prepaid interest must be prorated over the time for which payment is made. This is true for both cash and accrual basis taxpayers. The loan is for 1 month in 1992 and 11 months in 1993. Therefore, 1/12 of the interest is deductible in 1992 and 11/12, or $11,000 is deductible in 1993.

Choices "a", "c", and "d" are incorrect. Prepaid interest must be prorated over the time for which payment is made. This is true for both cash and accrual basis taxpayers.

by Tamar at May 05, 2022, 09:54 AM

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Aleisha

4 months ago

I’m confused, why isn’t it $12,000? Can someone explain?

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Kenda

4 months ago

Definitely $11,000, that’s how it works for cash basis taxpayers.

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Toi

4 months ago

Wait, how can she deduct the full amount if it was paid in 1992?

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Lindsey

4 months ago

I think it’s only $11,000 since it’s for the 1993 return.

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Jeanice

5 months ago

Interest paid is usually deductible, so $12,000 seems right.

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Gene

5 months ago

Alright, time to put my SAS administration knowledge to the test. I'm pretty confident that the "Clear Projects" action will empty the user's project repository and reset the checked-out status of the "Create Tables" DI job. I'll select option C.

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Bulah

5 months ago

Okay, I've got this. Wireframing is all about planning the website structure and functionality, so the answer is likely related to that.

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Brandon

5 months ago

Hmm, the question mentions using the Islamabad HQ and Islamabad WAN Edges as hub sites and preferring the MPLS TLOC for FTP traffic. I think the key is figuring out which policy type and configuration would allow me to set the preferred color.

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Edna

5 months ago

I feel like the answer could be 100 since that seems to be a typical limit for initial configurations in systems we've studied, but I'm not completely sure.

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