Answer: 2016= $13,000; 2017= $25,000
Explanation:
for 2016
Income to be recognised in 2016 for 12 months term= Total proceeds x period of service provided (july -december )/ Total contract term
Income to be recognised in 2016= 14,000 x 6months /12months
= 14,000 x 1/2= $7,000
Income to be recognised in 2016 for 24 months term= Total proceeds x period of service provided (july -december )/ Total contract term
Income to be recognised in 2016= 24,000 x 6months /24months
= 24,000 x 1/4= $6,000
income to be recognized in taxable income in 2016= $7,000 + $6,000= $13,000
for 2017
Income to be recognised in 2017 for 12 months contract term= Total proceeds x remaining period of service provided from jan. to june 2017 / Total contract term
Income to be recognised in 2017= 14,000 x 6months /12months
= 14,000 x 1/2= $7,000
Income to be recognised in 2017 for 24 months contract term= Total proceeds x remaining period of service provided fromjuly 2016 -dec 2017/ Total contract term
Income to be recognised in 2016= 24,000 x (24-6) 18months /24months
= 24,000 x 3/4= $18,000
income to be recognized in taxable income in 2017= $7,000 + $18,000= $25,000
