The Cable TV Company, an accrual-basis taxpayer, allows its customers to pay by the month, by the year, or two years in advance. In December 2018, the company collected the following amounts applicable to future services:Jan 2019 services (monthly contracts)$10,000Dec 2018 - Nov 2019 services (annual contracts)48,000Dec 2018 - Nov 2020 contracts (2-year contracts)72,000Assuming Cable TV wants to minimize income reported for 2018, what is the amount of gross income that must be reported for 2018 and how much of the income from these contracts will be reported in 2019?
What will be an ideal response?
| ? | ? | 2018 | 2019 |
| Jan 2019 services | $ 10,000 | $ 0 | $ 10,000 |
| Dec 2018 - Nov 2019 services | 48,000 | 4,000 | 44,000 |
| Dec 2018 - Nov 2020 contracts | 72,000 | 3,000 | 69,000 |
| Total recognized | ? | $7,000 | $113,000 |
All of the services for the one-month contracts will be performed in the next year so all of the income is deferred to 2019. One-twelfth of the services for the one-year contracts will be completed in 2018 so $4,000 will be recognized in 2018 and the $44,000 balance in 2019. With respect to the two-year contracts, 1/24th of the services will be completed in 2018 so $3,000 will be recognized in 2018, and the $69,000 balance will have to be recognized in 2019. Income cannot be deferred beyond the end of the tax year following the year of receipt so none of the income from the two-year contracts can be deferred to 2020.
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