Colbert Operates a Catering Service on the Accrual Method

question 44

Multiple Choice

Colbert operates a catering service on the accrual method. In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1st of year 1 through May 31st year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

• A) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3.
• B) $500 is recognized in year 1 and $8,500 in year 2.
• C) $9,000 is recognized in year 3.
• D) $2,500 is recognized in year 1 and $6,500 in year 2.
• E) $9,000 is recognized in year 1.

---

Definitions:

Gross Profits

The total revenue from sales minus the cost of goods sold, before deducting operating expenses.

Franchisor

A business entity that grants the right to use its business model and brand to an independent operator, known as a franchisee, in exchange for a fee.

Small Business Ownership

The operation and management of a small enterprise, typically characterized by a limited number of employees and relatively low volume of sales.

Franchising

A business model that allows individuals or entities to operate a store or restaurant by licensing a brand and business system from a franchisor.