The Maroon & Orange Gym, Inc

question 75

Multiple Choice

The Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month) ; a two-year membership costs $720 ($720/24 = $30 per month) . Cash payment is required at the beginning of the membership period. On July 1, 2017, the company sold a one-year membership and a two-year membership. The company should report as gross income from the two contracts:

• A)$1,200 in 2017.
• B)$960 in 2017.
• C)$180 in 2019.
• D)$780 in 2018
• E)None of these.

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Definitions:

U.S. Tax Court

A federal court that handles cases involving disputes over federal tax laws between taxpayers and the Internal Revenue Service.

IRS

The Internal Revenue Service, the federal agency responsible for administering and enforcing U.S. federal tax laws.

Form 1040EZ

A simplified tax form previously used by the IRS for individuals with uncomplicated tax situations, now superseded by Form 1040.

Tax Liability

The total amount of tax owed by an individual or business to the governing tax authority.