Question

WFO Corporation has gross receipts according to the following schedule: Year 1 $2 million Year 2 $4 million Year 3 $6 million Year 4 $4.5 million Year 5 $5 million Year 6 $7 million If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

A. Year 3
B. Year 4
C. Year 5
D. Year 6
E. None of these.

Answer 1

Answer:

D. Year 6

Explanation:

if the average gross revenue exceeding $5 million corporation can use the actual method.

for computation of average annual gross receipts at least three preceeding years of gross receipts should be considered over the years.

the gross receipts for year 6 = ($6 + $4.5 + $5)

Average annual gross receipls for year 6

= ($6 + $4.5 + $5)/3

= $5.16 million

Therefore, The corporation would have first require to use the actual method in year 6.