On December 12, 2020, Hook Company, a calendar year, cash basis business, mailed a $5,600 bill to Mrs. Gilder for professional services rendered during the month of November. Mrs. Gilder dropped off her $5,600 check at Hook's office on December 28, but the company secretary did not deposit the check in Hook's bank account until January 3. Which of the following statements is true?

Question

Quizplus · Accepted Answer

CA) The constructive receipt doctrine states that income is recognized when it is actually or constructively received. In this case, Hook Company had access to the funds when the check was received on December 28, 2020, thus it should recognize the income in 2020.C) As a cash basis taxpayer, income is recognized when cash is actually received. Although the check was received in 2020, it was not deposited until 2021. However, the correct interpretation under the constructive receipt doctrine would typically require recognizing the income when the check was received, not when it was deposited. This choice might be considered correct in a strict cash basis context without considering constructive receipt, but it contradicts the more accurate application of tax principles.

On December 12, 2020, Hook Company, a Calendar Year, Cash