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 1st of year 1 through May 31st year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

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Under the accrual method, income should be recognized when earned, regardless of when payment is received. In this case, Colbert earned the income for the catering services over the 18-month period from December 1st of year 1 through May 31st year 3. To minimize income recognition, Colbert should recognize $500 in year 1 (for the month of December), and $8,500 in year 2 (for the remaining 17 months of the first year and 12 months of the second year). No income should be recognized in year 3, as all services have been fully rendered by May 31st of year 3.

Colbert Operates a Catering Service on the Accrual Method