Question

In 2016, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients andearned $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, 2016, and received payment in full of $12,000.
How much income does Chaya report from these transactions in 2016?

Answer 1

Answer:

$27,333.33

Explanation:

The computation of the amount of income reported is shown below:

= Provided services to the customer + Payment received × number of months ÷ given number of months

= $25,000 + $12,000 × 7 months ÷ 36 months

= $25,000 + $2,333.33

= $27,333.33

The seven months is calculated from the June 1 to December 31. We assume the books are closed on December 31