Television station Channel 2 receives $200,000 from Harry's Auto Parts, Inc., to air Harry's commercials during a local automotive repair talk show in December 2018. December's ratings drop sharply when the show's star quits to work as a mechanic with a NASCAR team. Shortly thereafter, Harry contacts Channel 2 indicating that he wants to discontinue his sponsorship and requests return of $125,000 of the payment. The station continues to air the commercials and keeps the $200,000. Harry initiates a legal suit to recover the $125,000. Which of the following dictate that the $200,000 be included in Channel 2's 2018 gross income?
I.Capital Recovery Concept.
II.Claim of Right Doctrine.

Question

Television station Channel 2 receives $200,000 from Harry's Auto Parts, Inc., to air Harry's commercials during a local automotive repair talk show in December 2018. December's ratings drop sharply when the show's star quits to work as a mechanic with a NASCAR team. Shortly thereafter, Harry contacts Channel 2 indicating that he wants to discontinue his sponsorship and requests return of $125,000 of the payment. The station continues to air the commercials and keeps the $200,000. Harry initiates a legal suit to recover the $125,000. Which of the following dictate that the $200,000 be included in Channel 2's 2018 gross income?
I.Capital Recovery Concept.
II.Claim of Right Doctrine.
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Quizplus · Accepted Answer

The Claim of Right Doctrine states that income must be recognized in the year it is received, even if the taxpayer may not be entitled to keep the income in a later year. In this case, Channel 2 received the $200,000 from Harry's Auto Parts, Inc. in December 2018, and therefore it should be included in their 2018 gross income. The Capital Recovery Concept does not apply to this situation as it pertains to the recovery of the cost of an asset over its useful life, and is not applicable to the receipt of income.

Television Station Channel 2 Receives $200,000 from Harry's Auto Parts