Question

WFO Corporation has gross receipts according to the following schedule:

Year 1

$22.00 million

Year 2

$24.00 million

Year 3

$26.00 million

Year 4

$24.50 million

Year 5

$25.00 million

Year 6

$27.00 million

If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

Answer 1

WFO Corporation

Given WFO Corporation's annual gross receipts, which exceed $20 million, it is expected to use the accrual basis starting from Year 1, whether it is a C-Corporation or an S-Corporation.

Step-by-step explanation:

a) Data and Calculations:

Gross Receipts:

Year 1 $22.00 million

Year 2 $24.00 million

Year 3 $26.00 million

Year 4 $24.50 million

Year 5 $25.00 million

Year 6 $27.00 million

b) For a C-Corporation, when the average gross receipts for the past three years exceed $5 million, the corporation is expected to change from cash basis to accrual basis. Assuming that WFO Corporation is an S-Corporation, it is expected to change to the accrual basis if its annual gross receipts exceed $10 million.