The Maroon & Orange Gym,Inc. ,uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $480 ($480/12 = $40 per month);a two-year membership costs $720 ($720/24 = $30 per month).Cash payment is required at the beginning of the membership period.On July 1,2016,the company sold a one-year membership and a two-year membership.The company should report as gross income from the two contracts:

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The company uses the accrual method of accounting, meaning that revenue is recognized when it is earned, regardless of when payment is received. In this case, the company earned revenue for the one-year membership ($480) in full in 2016, and earned revenue for the two-year membership ($720) evenly over the two-year period (2016-2018). Therefore, in 2016, the company should recognize $480 + (1/2 x $720) = $840 in gross income. In 2017, the company should recognize another 1/2 x $720 = $360 in gross income from the two-year membership. Therefore, total gross income from the two contracts over the two-year period is $840 + $360 = $1,200. Option D is the correct answer that identifies the gross income from the two contracts.