Amy Borrowed $25,000 for Her Business from a Local Bank

Multiple Choice

Amy borrowed $25,000 for her business from a local bank two years ago. To increase her deductions for 2014, she pays December interest of $400 and prepays January and February interest totaling $800 on December 30, 2014. The maturity date of the note is November 30, 2015. How much of the interest that she paid in December is deductible in 2014? I. If she is a cash-basis taxpayer, Amy's interest deduction is $1,200. II. If she is an accrual-basis taxpayer, Amy's interest deduction is $400.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.