Final answer:
Under the cash method of accounting, Hank's gross income from the transaction in question would only include the $270 received in cash this year, and not the promised future payment of $440.
Step-by-step explanation:
To compute Hank's gross income for the year using the cash method of accounting as a calendar-year taxpayer, we would consider only the payments received during the year. In the scenario where Mike pays Hank $270 in cash in December and promises to pay the remaining $440 with interest in three months, Hank's gross income from this transaction for the current year would only be the $270, since this is the amount of cash actually received. The remaining $440, though promised, would not be accounted for until it is received.
The examples provided, such as Singleton Bank lending money to Hank's Auto Supply and individuals buying and selling houses, offer context on how the cash method of accounting works in different scenarios. When Singleton Bank lends $9 million to Hank's Auto Supply, the deposit increases the reserves of First National, where Hank deposits the check. This increase in reserves allows the bank to loan out more money. Similarly, when discussing real estate transactions and home equity, only realized transactions and cash flows would be considered for calculating gross income in the cash method of accounting.
In conclusion, under the cash method of accounting, Hank must only include the actual cash received during the calendar year in his gross income, which in this case is $270.