Colbert operates a catering service on the accrual method. In November of year 1, Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1 ^st of year 1 through May 31 ^stof year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition? A)$500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3. B)$500 is recognized in year 1 and $8,500 in year 2. C)$9,000 is recognized in year 3. D)$2,500 is recognized in year 1 and $6,500 in year 2. E)$9,000 is recognized in year 1.

Question

Quizplus · Accepted Answer

Since Colbert operates on the accrual method, he must recognize the income when earned, regardless of when payment is received. According to the payment received, Colbert will provide catering services from December 1 of year 1 through May 31 of year 3. Therefore, $500 will be recognized as income in year 1 (December 1 of year 1 through December 31 of year 1), and the remaining $8,500 will be recognized as income in year 2 (January 1 of year 2 through December 31 of year 2), as no services will be rendered beyond December 31 of year 2.

Colbert Operates a Catering Service on the Accrual Method