Question

In 2023, chaya corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. the clients signed notes receivable to chaya that have a fair market value of $22,000 at year-end. in addition, chaya sold a 36-month service contract on june 1, 2023, and received payment in full of $12,000.

How much gross income does Chaya report from these transactions in 2023?
A) From the services to clients: $25,000; From the service contract: $12,000.
B) From the services to clients: $22,000; From the service contract: $12,000.
C) From the services to clients: $25,000; From the service contract: $22,000.
D) From the services to clients: $22,000; From the service contract: $22,000.

Answer 1

Chaya Corporation should report a total gross income of $37,000 for 2023.

Step-by-step explanation:

Chaya Corporation, as an accrual basis taxpayer, should report gross income from the services provided to clients in the amount of $25,000. This is the amount that Chaya earned from providing services during the year. The fair market value of the notes receivable at year-end is not relevant for determining gross income.

Additionally, Chaya sold a service contract for $12,000 on June 1, 2023. This is also part of the gross income for 2023.

Therefore, Chaya should report a total gross income of $37,000 ($25,000 from services to clients and $12,000 from the service contract) for 2023.