Bigtown Advertising Agency, a calendar-year, accrual basis taxpayer, was paid $60,000 for a three-year advertising contract on July 1, 2019, and $36,000 for a 12-month contract on December 1, 2019.How much income must Bigtown recognize for these contracts in years 2019 and 2020, respectively?

Question

Quizplus · Accepted Answer

For the three-year contract, Bigtown should recognize $10,000 in 2019 (6 months of the contract from July to December at $20,000 per year). For the 12-month contract, $3,000 should be recognized in 2019 (1 month of the contract at $36,000 per year). Thus, $13,000 is recognized in 2019. The remaining $83,000 ($50,000 from the three-year contract for 2020 and 2021, and $33,000 from the 12-month contract for January to November 2020) is recognized in 2020.

Bigtown Advertising Agency, a Calendar-Year, Accrual Basis Taxpayer, Was Paid