[ 10 ] Alma Knack is a calendar-year, cas-basis farmer who grows corn and raises

Question

[ 10 ] Alma Knack is a calendar-year, cas-basis farmer who grows corn and raises hogs on a large farm in lowa. On December 26 of the current year, Alma purchased a 6-month supply of feed for the hogs costing $4,000. At the same time, she also purchased a new hybrid variety of seed costing $1,000 for the spring planting period. Her other farm expenses for the year were $9,000. Of the feed and seed purchased on December 26, Alma may deduct in the current year A. Only $1,000. B. Only $4,000 C. Only $4,500. D. All $5,00o

Explanation / Answer

Alma paid cash for purchase of feed $4,000

Seed purchased on cash $1,000

Total amount of feed cost allowed $5,000

As Alma is following cash basis of accounting, the entire amount of purchase by cash during the year for purchase of feed is allowed as deduction. Hence purchased feed on 26th December is fully allowed for deduction.

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