Norah's Music Lessons Inc.is a calendar year taxpayer using the accrual method of accounting.On October 1 of this year,the corporation received $1,200 for a one-year contract beginning on that date to provide 10 lessons.The company provided 6 lessons this year under the contract.How much should corporation include in income this year with respect to this contract?
A)$480
B)$360
C)$720
D)$1,200

Question

Quizplus · Accepted Answer

Since Norah's Music Lessons Inc. uses the accrual method of accounting, the company must recognize income as it is earned, regardless of when payment is received. Therefore, the company should recognize 6/10 of the total revenue ($1,200) earned from providing lessons this year, which is $720 (C). The remaining $480 will be recognized as income in the next calendar year when lessons are provided.