Fast-Heat, an accrual basis calendar year taxpayer, sells furnaces.With each sale, the corporation also sells a one-, two-, or three-year contract to service the furnace.On November 1 of this year, the corporation sold a one-year contract for $120 and a two-year contract for $240.The taxpayer wants to postpone income for as long as possible.Due to these sales, the corporation will report income for the current year of

Question

Quizplus · Accepted Answer

The corporation can defer the income from the service contracts. For the one-year contract, $20 (2 months of service) is recognized in the current year. For the two-year contract, $20 (2 months of service) is recognized in the current year. Total income recognized is $40.

Fast-Heat, an Accrual Basis Calendar Year Taxpayer, Sells Furnaces