Television station Channel 2 receives $200,000 from Harry's Auto Parts,Inc.,to air Harry's commercials during a local automotive repair talk show in December 2013.December's ratings drop sharply when the show's star quits to work as a mechanic with a NASCAR team.Shortly thereafter,Harry contacts Channel 2 indicating that he wants to discontinue his sponsorship and requests return of $125,000 of the payment.The station continues to air the commercials and keeps the $200,000.Harry initiates a legal suit to recover the $125,000.Which of the following dictate that the $200,000 be included in Channel 2's 2013 gross income?
I.Capital Recovery Concept.
II.Claim of Right Doctrine.

Question

Quizplus · Accepted Answer

According to the Claim of Right Doctrine, income must be recognized when it is received by the taxpayer without restriction or limitation. In this case, Channel 2 received the $200,000 from Harry's Auto Parts, Inc. without any restrictions or limitations, and thus it must be included in their gross income for 2013. The Capital Recovery Concept is not applicable in this situation.

Television Station Channel 2 Receives $200,000 from Harry's Auto Parts,Inc