Joe Operates a Plumbing Business That Uses the Accrual Method

question 52

Essay

Joe operates a plumbing business that uses the accrual method and reports on a calendar year. This year, Joe signed a $50,000 binding contract with Brian. Under the contract, Brian will provide Joe with up to 2,000 hours of vehicle repairs at $25 per hour. This year, Brian provided 200 hours of repair services and billed Joe for $5,000. At year-end, Joe had not paid Brian for the services. What amount, if any, can Joe deduct for the repair services this year?

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Definitions:

Reservoir

A large natural or artificial lake used for the storage and regulation of water, often for public water supply, hydroelectric power generation, or flood control.

Isostatic Rebound

The rise of land masses that were depressed by the huge weight of ice sheets during the last glacial period, through a process of readjustment.

Ice

Water frozen into a solid state, which can appear transparent or a more or less opaque bluish-white color, depending on the presence of impurities.

River Terraces

Step-like landforms alongside rivers, formed by the erosion of sediments and changes in water level.