With respect to income from services,which of the following is true?
A)The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)A cash basis taxpayer can spread the income from a 12-month service contract over the contract period.
C)If an accrual basis taxpayer sells a 24-month service contract on July 1,2010,for $2,400,the taxpayer's 2011 gross income from the contract is $1,800.
D)If the accrual basis taxpayer sells a 12-month service contract on July 1,2010,all of the income is recognized in 2011.
E)None of the above.

Question

Quizplus · Accepted Answer

The correct statement is C. When an accrual basis taxpayer sells a service contract, the income is recognized as the services are performed. Therefore, in the year of sale (2010), only a portion of the income ($200 per month) is recognized. The rest of the income (18 months × $200 per month = $3,600) is recognized in the following year (2011). Therefore, the taxpayer's 2011 gross income from the contract is $1,800. Choices A, B, and D are incorrect statements.

With Respect to Income from Services,which of the Following Is