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kirill [66]
2 years ago
7

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($500 per year), or two y

ears in advance ($950). In September 2017, the company collected the following amounts applicable to future services:October 2017-September 2019 services (two-year contracts) $144,000October 2017-September 2018 services (one-year contracts) 128,000Total $272,000As a result of the above, Orange Cable should report as gross income:a. $272,000 in 2017.b. $128,000 in 2017.c. $168,000 in 2018.d. $222,000 in 2018.e. None of these.
Business
1 answer:
Lisa [10]2 years ago
8 0

Answer:

D. $222,000 in 2018.

Explanation:

One-eighth (3/24) of the payments on the two-year contracts were earned (1/8 × $144,000 = $18,000) and one-fourth (1/4 × $128,000 = $32,000) of the payments on the one-year contracts were earned in 2017 and is included in 2017 gross income. The balance of the payments of $222,000 ($272,000 - $18,000 - $32,000) must be included in 2018 gross income.

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