Office Palace,Inc. ,leased an all-in-one printer to a new customer,Ashley,on December 27,2010.The printer was to rent for $700 per month for a period of 36 months beginning January 1,2011.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,000 damage deposit.Office Palace must recognize as income for the lease:
A)$0 in 2010,if Office Palace is an accrual basis taxpayer.
B)$1,400 in 2011,if Office Palace is a cash basis taxpayer.
C)$2,400 in 2010,if Office Palace is a cash basis taxpayer.
D)$1,400 in 2010,if Office Palace is an accrual basis taxpayer.
E)None of the above.

Question

Quizplus · Accepted Answer

Office Palace is an accrual basis taxpayer, so it must recognize income when it is earned, not when it is received. In this case, Office Palace earned $1,400 in rent in 2010, even though it did not receive the payment until 2011.