Warm-A-Home, an Accrual Basis Calendar Year Taxpayer, Sells Furnaces

question 68

True/False

Warm-a-Home, an accrual basis calendar year taxpayer, sells furnaces.With each sale, the corporation also sells a one-, two-, or three-year contract to turn the furnaces on and off and do routine maintenance.Assuming the corporation sold a one-year contract on November 1 at a price of $120, it will report income for this year of $20.

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Definitions:

Cohesion

The property of sticking together. Compare with adhesion.

Adhesion

The property of sticking to some other substance. Compare with cohesion.

Capillary Action

The ability of water to move in small-diameter tubes as a consequence of its cohesive and adhesive properties.

Surface Tension

The attraction that the molecules at the surface of a liquid may have for one another.