Chicago Cleaning Services Provides Nightly Janitorial Services at a Monthly

question 135

Multiple Choice

Chicago Cleaning Services provides nightly janitorial services at a monthly rate of $300. Customers have three payment options: If Chicago Cleaning is a cash basis taxpayer: I. All cash payments are taxable when they are received. II. One-year advance payments may be deferred: $280 would be included in income for each month of service provided.

• A) Only statement I is correct.
• B) Only statement II is correct.
• C) Both statements are correct.
• D) Neither statement is correct.

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Definitions:

Activity-Based Costing System

An accounting method that assigns costs to products based on the activities they require for production.

Batch-Level Costs

Costs that are incurred for every batch produced, regardless of the size of the batch, such as setup costs or inspection costs.

Product-Level Costs

Expenses directly tied to specific products, including costs for materials and labor required to produce these products, as well as costs associated with specific product designs or customized orders.

Traditional Costing System

An accounting method that allocates overhead costs to products based on a predetermined overhead rate.