Question

Black Cable 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 2019, the company collected the following amounts applicable to future services: October 2019 - September 2021 services (200 two-year contracts) $192,000 October 2019 - September 2020 services (200 one-year contracts) 120,000 Total $312,000As a result of this, Black Cable should report gross income for 2020:a. $54,000 b. $78,000 c. $258,000 d. $312.000

Answer 1

c. $258,000

Black cable should report $258,000 as gross income for 2020

Step-by-step explanation:

One-eighth (3/24) of the payments on the two-year contracts were earned (1/8 of $192,000 =24,000)

One-fourth (1/4 of $120,000 = $30,000) of the payment on the one-year contracts were earned in 2019 and is included in 2019 gross income.

The balance of the payment = $312,000 - $24,000-$30,000 = $258,000. $258,000 must be included in 2020 Black Cable gross income