CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately: The amount of income CT Corporation must report for this year is

Question

CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately:  The amount of income CT Corporation must report for this year is

Quizplus · Accepted Answer

($200 + $480 + $1,000 = $1,680) Collections for services that do not extend beyond the next tax year may be accrued. $800 / 20 months = $40 per month. $40 × 12 months this year = $480 of the $800 accrued this year. $4,000/48 months = $83.33 per month × 12 months = $1,000. Note that the balance of the long term contracts will be recognized in the following year as they cannot be deferred more than one tax year.

CT Computer Corporation, an Accrual Basis Taxpayer, Sells Service Contracts