15 information The following information applies to the questions displayed belo

Question

15 information The following information applies to the questions displayed below art 1 of 4 ping is a calendar-year, accrual-method taxpayer.In September, Brown Thumb negotiated a services it would provide to the city in November of the current year. The contract specifies that $14,000 contract for Brown Thumb will receive $4,000 in October as a down payment for these services and $10,000 in January of next year 25 it will receive the remaining Print a. How much income from this $14,000 contract will Brown Thumb recognize in the current year?

Explanation / Answer

Solution: a. Recognized Income $14,000 Working Notes: Since the services under the contract is provided in November that is in the current year , hence, income is accrued in the current year, and as per accrual method is following $14000 total value of the contract should be recognized in Current year. b. Recognized Income $4,000 Working Notes: Under cash method , Income is recognized in current year the portion of contract value which is received in cash and in our case , cash received is $4000 in current year , hence only $4000 will be recognized as Income in the current year. c. Recognized Income $14,000 Working Notes: As Brown Thumb Landscaping is accrual-method taxpayer , $14000 income accrued this year, if it may get only $12,000 next year due to City Budget review , then in next year adjustment entry can be made for that. In current year services have been provided & income is 100% accrued in current year and get recognized 100% current year as per the terms of contract. Please feel free to ask if anything about above solution in comment section of the question.

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