The amount of income CT Corporation must report for this year is
CT Computer Corporation, an accrual-basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately:
A) $200.
B) $1,000.
C) $1,680.
D) $5,000.
C) $1,680.
Collections for services that do not extend beyond the next tax year may be accrued. $800 / 20 months = $40 per month. $40 × 12 months this year = $480 of the $800 accrued this year. $4,000/48 months = $83.33 per month × 12 months = $1,000. ($200 + $480 + $1,000 = $1,680) Note that the balance of the long-term contracts will be recognized in the following year as they cannot be deferred more than one tax year.
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