TAX_T1_Sol14.pdf - 59. Award: 10.00 points Colbert operates...

59.
Award: 10.00 points
Colbert operates a catering service on the accrual method. In November of year 1 Colbert received
a payment of $9,000 for 18 months of catering services to be rendered from December 1
st
of year 1
through May 31
st
year 3. When must Colbert recognize the income if his accounting methods are
selected to minimize income recognition?
$500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3.
$500 is recognized in year 1 and $8,500 in year 2.
$9,000 is recognized in year 3.
$2,500 is recognized in year 1 and $6,500 in year 2.
$9,000 is recognized in year 1.
Prepayments for services can be deferred for one year if the payments are also unearned for
financial reporting purposes. ($9,000 ÷ 18) × 1 Month = $500)
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References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-05 Apply cash and
accrual methods to determine business
income and expense deductions.

60.
Award: 10.00 points
Which of the following types of transactions may not typically be accounted for using the cash
method for small proprietorships?