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, 2012 for $3,600, the taxpayer's 2013 gross income from the contract is $3,000.
D)If an accrual basis taxpayer sells a 12-month service contract on July 1, 2012, all of the income is recognized in 2012.
E)None of the above.

Question

Quizplus · Accepted Answer

For accrual basis taxpayers, income from services is recognized when earned, regardless of when payment is received. Therefore, the income from a 36-month service contract sold on July 1, 2012 will be recognized over the 36-month period that the services will be rendered. Thus, the gross income recognized in 2013 will be $3,000 ($3,600/36 months * 6 months in 2013). 
Option A is not always true as some services may be completed in a shorter period than the contract period. 
Option B is incorrect as cash basis taxpayers must recognize income when received. 
Option D is incorrect as this statement only applies if the entire service contract is completed within the tax year.

With Respect to Income from Services, Which of the Following