Based on the following events, complete the statements regarding the cash and accrual methods of accounting. a. Purchased new equipment, paying $50,000 cash and giving a note payable for $30,000 due next year. Both the cash and accrual basis taxpayers must capitalize the cost of the equipment, $ 2 , and recover the cost through depreciation over the class life of the asset. Feedback Income and deductions are placed within particular years through the use of tax accounting methods. The basic accounting methods are the cash method, accrual method, and hybrid method.
b. Paid $3,600 for a three-year service contract on the new equipment. Both the cash and accrual basis taxpayers must capitalize the prepaid expense and recover its cost through a three-year.