Green Company, an accrual basis taxpayer, provides business-consulting services.Clients generally pay a retainer at the beginning of a 12-month period.This entitles the client to no more than 40 hours of services.Once the client has received 40 hours of services, Green charges $500 per hour.Green Company allocates the retainer to income based on the number of hours worked on the contract.At the end of the tax year for contracts entered into for the current year, the company had $50,000 of unearned revenues from these contracts.The company also had $10,000 in unearned rent income received this year from excess office space leased to other companies.Based on this, Green must include in gross income for the subsequent tax year:

Question

Quizplus · Accepted Answer

The $50,000 of unearned revenues from the consulting contracts must be included in gross income for the subsequent tax year because it represents income earned during the current year that has not yet been recognized. The $10,000 in unearned rent income should also be included in gross income, but it is not directly related to the consulting services and is therefore not relevant to the calculation of the answer.

Green Company, an Accrual Basis Taxpayer, Provides Business-Consulting Services