With respect to income from services,which of the following is true?
A)The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)If an accrual basis taxpayer sells a 36-month service contract on July 1,2015 for $3,600,the taxpayer's 2015 gross income from the contract is $600.
D)If an accrual basis taxpayer sells a 24-month service contract on July 1,2015,one-half (12/24) the income is recognized in 2016.
E)None of these.

Question

Quizplus · Accepted Answer

For accrual basis taxpayers, income from services is recognized when earned, regardless of when payment is received. Therefore, if a 36-month service contract is sold on July 1, 2015, the taxpayer would recognize $1,200 ($3,600/36 months) of gross income in 2015. Option A is incorrect because the income from services must be recognized in the period it is earned; the fact that the contract is for a specific period does not affect the timing of income recognition. Option B is incorrect because cash basis taxpayers recognize income when payment is received; the contract period is irrelevant. Option D is incorrect because the income from services is recognized when earned, not over the period of the contract.

With Respect to Income from Services,which of the Following Is