CT Computer Corporation,an accrual-basis taxpayer,sells service contracts on the computers it sells.At the beginning of January of this year,CT Corporation sold contracts with service to begin immediately: The amount of income CT Corporation must report for this year is
A)$200.
B)$1,000.
C)$1,680.
D)$5,000.

Question

CT Computer Corporation,an accrual-basis taxpayer,sells service contracts on the computers it sells.At the beginning of January of this year,CT Corporation sold contracts with service to begin immediately:  The amount of income CT Corporation must report for this year is
A)$200. 
B)$1,000. 
C)$1,680. 
D)$5,000.

Quizplus · Accepted Answer

C)Collections for services that do not extend beyond the next tax year may be accrued.$800 / 20 months = $40 per month.$40 × 12 months this year = $480 of the $800 accrued this year.$4,000/48 months = $83.33 per month × 12 months = $1,000.($200 + $480 + $1,000 = $1,680)Note that the balance of the long-term contracts will be recognized in the following year as they cannot be deferred more than one tax year.

CT Computer Corporation,an Accrual-Basis Taxpayer,sells Service Contracts on the Computers