Gabe Corporation, an Accrual- Basis Taxpayer That Uses the Calendar

question 603

Essay

Gabe Corporation, an accrual- basis taxpayer that uses the calendar year as its tax year, sells CPE (continuing professional education) courses under contracts ranging from three months to two years. Assume that Gabe Corporation sold three contracts on July 1, 2018: one for six months costing $300; one for one year costing $500; a for two years costing $800.
Required: What is the minimum amount of income that must be recognized in 2018 and 2019?

---

Definitions:

Sinking Fund Bond

A type of bond that includes a fund set aside by the issuer to repay the bond at maturity, ensuring the bond's eventual payoff.

Specific Assets

Specific assets are identifiable and tangible assets like machinery, land, or buildings that a company owns and utilizes in its operations.

Board Of Directors

A group of individuals elected by the shareholders of a corporation to oversee and make decisions on behalf of the corporation.

Contractual Interest Rate

The agreed-upon rate of interest in a loan or bond contract, which determines the amount of interest the borrower will pay to the lender.