1. Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2014 he entered into a lease to rent a building for use in his business at $3,000 a month. On that day Vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). How much may Vernon deduct for rent expense on his 2014 tax return?

a) $0

b) $12,000

c) $36,000

d) 54,000

e) None of the choices provided

2. Amy is a calendar year taxpayer reporting on the cash basis. Which of the following income or expense items should not be included in her 2014 tax return?

a. On April 15, 2015, she makes a deductible contribution to an IRA for 2014.
b. She prepays half a year of interest in advance on her mortgage on the last day of 2014.
c. She pays all her outstanding invoices for standard business expenses in the last week of December.
d. She sends out a big bill to a customer on January 1, 2015, even though she did all of the work in December of 2014.