Heat-a-Home, an accrual basis calendar year taxpayer, sells furnaces.With each sale, the corporation also sells a one-, two-, or three-year contract to turn the furnaces on and off and do routine maintenance.Assuming the corporation sold a two-year contract on November 1 at a price of $240, it may report income for this year of $20.

Question

Quizplus · Accepted Answer

Since Heat-a-Home is an accrual basis taxpayer, it can recognize income at the time of the sale of the two-year contract on November 1. The income recognized is $20, which represents the portion of the contract that relates to the current year (2/24 of $240 = $20).

Heat-A-Home, an Accrual Basis Calendar Year Taxpayer, Sells Furnaces