Question

Brown Thumb Landscaping is a calendar-year, accrual-method taxpayer. In September, Brown Thumb negotiated a $14,000 contract for services it would provide to the city in November of the current year. The contract specifies that Brown Thumb will receive $4,000 in October as a down payment for these services and it will receive the remaining $10,000 in January of next year. How much income from this $14,000 contract will Brown Thumb recognize in the current year?

Answer 1

$14,000

Step-by-step explanation:

Amount negotiated for services it would provide to the city in November = $14,000

Contract specifies amount received by brown in October = $4,000

Remaining amount received in next year January = $10,000

Total amount of income $14,000 will be recognized as a current year income because under the accrual method, the taxpayers must recognize their income, when the payment about to made and payment is received.

That's why $14,000 income will be recognized in this calendar year.