Question

1. Determine the proper tax year for gross income inclusion in each of the following cases

1. 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 these items?

2. 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 contact.  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 current and subsequent year 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 of 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? (10 points)

Answer 1