Question

BugLess Inc, a calendar year, accrual basis corporation, provides pest extermination services to its customers. In October 2020, BugLess contracted with Mr. Cass to provide monthly service calls for 24 months. Each service call costs $60, and Mr. Cass prepaid $1,440 when he signed the contract. BugLess made three service calls to Mr. Cass' home in 2017. As a result of the contract, BugLess should report: Group of answer choices $1,440 taxable income in 2020. $180 taxable income in 2020, and $1,260 taxable income in 2021. $180 taxable income in 2020, $720 taxable income in 2021, and $540 taxable income in 2022. None of the above

Answer 1

$180 taxable income in 2020, and $1,260 taxable income in 2021.

Step-by-step explanation:

Calculation to determine what BugLess should report As a result of the contract

Calculation for the TAXABLE INCOME IN 2020

Using this formula

2020 Taxable income=Service call costs*Numbers of service calls

Let plug in the formula

2020 Taxable income=$60*3

2020 Taxable income=$180

Calculation for the TAXABLE INCOME IN 2021

Using this formula

2021 Taxable income=Prepaid Amount-(Service call costs*Numbers of service calls)

Let plug in the formula

2021 Taxable income=$1,440-($60*3)

2021 Taxable income=$1,440-$180

2021 Taxable income=$1,260

Therefore As a result of the contract, BugLess should report:$180 taxable income in 2020, and $1,260 taxable income in 2021.