Sally is an attorney who computes her taxable income using the cash method of ac

Question

Sally is an attorney who computes her taxable income using the cash method of accounting. Sage Corporation, owned 40% by Sally's brother 40% by her cousin and 20% by her grandmother, uses the accrual method of accounting. Sally is a calendar-year taxpayer, whereas Sage Corporation's fiscal year ends on January 31 During 2016, Sally does some consulting work for Sage Corporation for a fee of $10,000. The work is completed on December 15 and Sage receives Sally's invoice on that date. Requirement For each of the following assumptions, answer the following questions: During which tax year must Sally report the income? During which tax year must Sage Corporation deduct the expense? a. The payment to Sally is made on December 27, 2016. b. The payment to Sally is made on January 12, 2017. c. The payment to Sally is made on February 3, 2017 Sage must deduct the expense in Sally must report income in a. The payment to Sally is made on December 27,2016 b. The payment to Sally is made on January 12, 2017 c. The payment to Sally is made on February 3, 2017

Explanation / Answer

Sally compute her taxable income on cash method and Sage corporation uses the accrual method of accounting.

Under cash method, income is reported when cash is received.

Under accrual mehod, expenses are booked when occured even if it is not paid.

a 2016 2016-17 b 2017 2016-17 c 2017 2017

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