WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1,in which year would it have first been required to use the accrual method?

Question

WFO Corporation has gross receipts according to the following schedule:  If WFO began business as a cash-method corporation in Year 1,in which year would it have first been required to use the accrual method?

Quizplus · Accepted Answer

According to the gross receipts schedule, WFO's average annual gross receipts for Year 1-3 were below $5 million, so it would not have been required to use the accrual method. However, in Year 4, its average annual gross receipts exceeded $5 million, which triggers the requirement to use the accrual method in the following year (Year 5). Therefore, the correct answer is D (Year 6), as that is the first year after Year 5 when WFO would have been required to use the accrual method.

WFO Corporation Has Gross Receipts According to the Following Schedule