Dolphin Co. received $1,500 in fees during 2009, 1/3 of which was earned in 2010, the rest was earned when received. The company should report which of the following amounts as income in 2009?
A) $1,500.
B) $500.
C) $1,000.
D) $0.

Question

Quizplus · Accepted Answer

Only $1,000 should be reported as income in 2009 because the remaining $500 was earned in 2010. Since the company uses the cash basis accounting method, it only recognizes revenue when it actually receives the cash, unless the revenue is earned under conditions that allow for revenue recognition prior to cash collection (which is not the case here). Therefore, only the portion of fees received in 2009 that were actually earned in 2009 should be recognized as income in that year, which is $1,000 out of the $1,500 received.