CT Computer Corporation, a Cash- Basis Taxpayer, Sells Service Contracts

question 903

Multiple Choice

CT Computer Corporation, a cash- basis taxpayer, sells service contracts on the computers it sells. At the beginni January of this year, CT Corporation sold contracts with service to begin immediately: The amount of income CT Corporation must report for this year is

• A) $1,680.
• B) $5,000.
• C) $200.
• D) $1,000.

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Definitions:

Fixed Expenses

Costs that do not vary with the level of production or sales volume, such as rent or salaries.

Segmented Income Statement

An income statement broken down into segments or divisions of a company, allowing for analysis of profitability by segment.

Net Operating Income

The total profit of a business after deducting operating expenses but before subtracting any interest or taxes.

Common Fixed Expenses

Expenses that do not vary with production or sales levels, shared across different segments or departments of a company.