Question

The Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of the tax year, the company had $50,000 of unearned revenues from these contracts. The company also had $10,000 in unearned rent income received from excess office space leased to other companies. Based on the above, Green must include in gross income for the current year:a. $60,000.b. $50,000.c. $10,000.d. $0.e. None of these.

Answer 1

The Green Company must include $50,000 of unearned revenues from its business-consulting services contracts and $10,000 of unearned rent income in its gross income for the current year.

Step-by-step explanation:

The Green Company, as an accrual basis taxpayer, must include in its gross income for the current year the unearned revenues from its business-consulting services contracts and the unearned rent income.

To calculate the amount of income to include, we need to determine the portion of the retainer that has been earned. The company charges $500 per hour for services after the client has received 40 hours, so we can assume that the retainer covers those first 40 hours. If the $50,000 unearned revenues represent the portion of the retainer that has not been earned, it indicates that the company has performed more than 40 hours of services on these contracts. Therefore, the company must include $50,000 of unearned revenues from these contracts in its gross income for the current year.

As for the $10,000 in unearned rent income, the company must also include this amount in its gross income for the current year.

Answer 2

b. $50,000

Step-by-step explanation:

The gross income is that income which is received before any tax or deductions.

The amount which is included in the gross income is $50,000 as this amount is the unearned rent income that is received from leasing of office space to other companies.

The other information which is given in the question is not relevant and thus, not be considered for the computation part. Hence, ignored it