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4 9 . Sally is an attorney who computes her taxable income using the cash method of accounting. Sage Corporation, owned 4 0 % by
Sally is an attorney who computes her taxable income using
the cash method of accounting. Sage Corporation, owned by Sallys brother, by
her cousin, and by her grandmother, uses the accrual method of accounting. Sally is a
calendaryear taxpayer, whereas Sage Corporations fiscal year ends on January During
Sally does some consulting work for Sage Corporation for a fee of $ The
work is completed on December and Sage receives Sallys invoice on that date. For each
of the following assumptions, answer the following questions: During which tax year must
Sally report the income? During which tax year must Sage Corporation deduct the expense?
a The payment to Sally is made on December
b The payment to Sally is made on January
c The payment to Sally is made on February
During the current year, Kim incurs the following expenses
with respect to her beachfront condominium in Hawaii:
Expense Items Amount
Insurance $
Repairs and maintenance
Interest on mortgage
Property taxes
Utilities
Depreciation $
During the current year, Kim used the condominium days for vacation. She rented it
out for a total of days, generating a total gross income of $
a What are the total amounts of deductions for and from AGI that Kim may take with
respect to the condominium using the IRS allocation method?
b What is the effect on the basis of the condominium?
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