Question

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year) or two years in advance ($960). In September 2020, the company collected the following amounts applicable to future services:

October 2020-September 2022 services (200 two-year contracts) $192,000
October 2020-September 2021 services (200 one-year contracts) 120,000
Total $312,000

As a result of this, Orange Cable should report as gross income for 2021, the year following receipt:

a. $54,000
b. $78,000
c. $258,000
d. $312.000

Answer 1

Orange Cable TV Company

As a result of this, Orange Cable should report as gross income for 2021, the year following receipt:

$186,000

Step-by-step explanation:

a) Data and Calculations:

Annual subscriptions = $600 per year

Two-years subscriptions = $960

September 2020 collections:

October 2020-September 2022 services (200 two-year contracts) = $192,000

Monthly subscriptions = $192,000/24 = $8,000

October 2020-September 2021 services (200 one-year contracts) = 120,000

Monthly subscriptions = $120,000/12 = $10,000

Total = $312,000

Collections for 2021:

a. Monthly subscriptions of $8,000 * 12 = $96,000

b. Monthly subscriptions of $10,000 * 9 = 90,000

Total collections for 2021 = $186,000