The Parr Corporation incurs the following expenses. When can it deduct the expenses if it uses the accrual method of accounting? the cash method?
a. Parr Corporation mails a check for $5,000 to the United Way on December 26, 2011. The company’s canceled check shows that the United Way did not deposit the check until January 16, 2012.
b. For 2011, Parr Corporation estimates its warranty expense to be 1.5% of sales. The company’s sales for 2011 were $2,100,000. The actual warranty costs paid in 2011 were $40,000.
c. On August 1, 2011, Parr Corporation borrows $225,000 on a 1-year note. Because the company is experiencing a cash-flow problem, the bank agrees to let Parr pay the interest when the note matures. In exchange, the interest rate on the note is 10%—3%above the current market rate.
d. Parr Corporation advertises on radio and in the newspaper. During the year, the company is billed $16,500 for advertising. The beginning balance in the advertising payable account on January 1, 2011, is $2,500, and the ending balance on December 31, 2011, is $3,300.
e. On August 1, 2011, Parr Corporation pays $3,200 for a 1-year fire insurance policy for the period August 1, 2011, through July 31, 2012. Parr’s insurance company requires the 1-year prepayment, which the company makes every year.