Case_Income_Taxes - CASE: Accounting for Income Taxes (ACG...

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CASE: Accounting for Income Taxes (ACG 4133) First Year Information: 2013 Gerson Company, which started operations at the beginning of 2013, produces various products on a contract basis. Each contract generates a gross profit of $80,000. Gerson’s contracts provide for the customer to pay on an installment basis whereby one-fifth of the contract revenue is collected in the year of completion and delivery and in each of the following four years. Gross profit is recognized in the year of delivery for financial reporting purposes (accrual basis), and in the year cash is collected for tax purposes (installment basis). Presented below is information related to Gerson’s operations for 2013. 1. In 2013, the company completed seven contracts that allow for the customer to pay on an installment basis. The related gross profit amount of $560,000 was recognized for financial reporting purposes. Only $112,000 of gross profit on installment sales was reported on the 2013 tax return. The future collections on the related installment receivables are expected to result in taxable amounts of $112,000 in each of the next 4 years. 2. At the beginning of 2013, Gerson Company purchased depreciable assets with a cost of $540,000. For financial reporting purposes, Gerson depreciates these assets using the straight-line method over a 6-year service life and zero salvage value. For tax purposes, the
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Case_Income_Taxes - CASE: Accounting for Income Taxes (ACG...

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