Shadow Services uses the accrual method and reports on a calendar year. This year Shadow agreed to a uniform-cleaning contract with Odie Cleaning. Under the contract Odie bills Shadow for cleaning services as the services are provided. At year-end Shadow paid Odie $2,350 for the services rendered during the year. In addition, Shadow paid Odie $700 for cleaning services expected in January of next year. What amount, if any, can Shadow deduct for the cleaning services this year?
What will be an ideal response?
$3,050.
Shadow can deduct amounts paid for services provided to it this year and any amounts paid if performance is reasonably expected within three and a half months of the date of the payment.
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