Question

A cash basis landlord makes new tenants pay first and last month's rent at the start of the lease. How does the landlord report the following:

Purple Corporation, an exterminating company, is a calendar year taxpayer. It contracts to provide service to homeowners once a month under a one-, two-, or three-year contract. For financial reporting purposes, Purple reports the income ratably over the months of the contract. On April 1 of the current year, the company sold a customer a one-year contract for $120. How much of the $120 is taxable in the current and subsequent years if the company is an accrual basis taxpayer? If the $120 is payment on a two-year contract, how much is taxed in the year the contract is sold and in the following years? If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following years?

-Pink, Inc., an accrual basis taxpayer, owns an amusement park whose fiscal year ends September 30. To increase business during the fall and winter months, Pink sold passes that would allow the holder to ride “free” during the months of October through March. During the month of September, $6,000 was collected from the sale of passes for the upcoming fall and winter. When will the $6,000 be taxable to Pink? 


-The taxpayer is in the office equipment rental business and uses the accrual basis of accounting. In December he collected $5,000 in rents for the following January. When is the $5,000 taxable?

Answer 1

Purple Corporation, an exterminating company, is a calendar year taxpayer. It contracts to provide service to homeowners once a month under a one-, two-, or three-year contract. For financial reporting purposes, Purple reports the income ratably over the months of the contract. On April 1 of the current year, the company sold a customer a one-year contract for $120.

How much of the $120 is taxable in the current and subsequent years if the company is an accrual basis taxpayer?

Under Accrual Basis below is the taxability for one year contract.

	Taxable Amount
Current Year	$                   90.00
Next Year	$                   30.00

If the $120 is payment on a two-year contract, how much is taxed in the year the contract is sold and in the following years?

Under Accrual Basis below is the taxability for two years contract.

	Taxable Amount
Current Year	$                   45.00
Next Year	$                   60.00
In the Third Year	$                   15.00
	$                 120.00

If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following years?

Under Accrual Basis below is the taxability for three years contract.

	Taxable Amount
Current Year	$                   30.00
Next Year	$                   40.00
In the Third Year	$                   40.00
In the Fourth Year	$                   10.00
	$                 120.00

-Pink, Inc., an accrual basis taxpayer, owns an amusement park whose fiscal year ends September 30. To increase business during the fall and winter months, Pink sold passes that would allow the holder to ride “free” during the months of October through March. During the month of September, $6,000 was collected from the sale of passes for the upcoming fall and winter. When will the $6,000 be taxable to Pink? 


Current Year	NIL
Next Year	$ 6,000.00
	$ 6,000.00

-The taxpayer is in the office equipment rental business and uses the accrual basis of accounting. In December he collected $5,000 in rents for the following January. When is the $5,000 taxable?

Ans. Since the rent has been collected in advance for next month it is to be reported as liablity for the current month and hence not taxable in the current fiscal year and entire amount of $ 5,000 taxable in the next fiscal year