Question

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year), or two years in advance ($960). In September 2018, the company collected the following amounts applicable to future services: October 2018-September 2020 services (200 two-year contracts) $192,000 October 2018-September 2019 services (200 one-year contracts) 120,000 Total $312,000 As a result of the above, Orange Cable should report as gross income for 2019: $54,000 $78,000 $258,000 $312.000

Answer 1

Answer:

2019 revenue 186,000

Explanation:

on accrual basis it will recognize based on past of time rather than cash collection and disbursements

Accrued revenue for september sales:

$ 192,000 contracts for 2 years

we dvide by 24 month to get the value per month and then, multiply by the expired months to recognize gain attributable to 2019:

192,000 / 24 months x 12 months standing for 2019: 96,000

Now, we calcualte for 1 year contract:

120,000 for a year during 2019 this will be outstanding from January 1st to September 30th 2019

A total of 9 monhs so:

120,000 x 9/12 = 90,000

In total during 2019 it will recognize revenue for: 96,000 + 90,000 = 186,000