Derek Builders, LLC, Entered into a Contract to Do Extensive

question 112

Essay

Derek Builders, LLC, entered into a contract to do extensive remodeling work on Helen's house in October 2018. The bid cost of the job was $5,000 and Helen made a down payment of $2,000 in November 2018. Because Helen was short of cash, Derek agreed to accept payment of the remaining $3,000 when she receives her tax refund in 2019. Derek completed the work on the contract in December. Helen dies in May 2019 before she had paid Derek. Because Helen was heavily in debt when she died, the executor of Helen's estate told Derek that he would be lucky to get $1,000 when the estate was settled.
a.Derek Builders uses the accrual method of accounting. Based on the income tax concepts, explain how Derek should account for the contract.
b.In 2020, Derek Builders receives $1,500 from Helen's estate as final payment on the $3,000 amount owed. Based on the income tax concepts, explain how Derek should treat the $1,500 receipt in 2020.?

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Definitions:

Edward Weston

An influential American photographer known for his images of the natural form, landscapes, and still lifes.

Still-Life Photographs

Photographs focusing on inanimate subjects, often arranged with particular compositions to emphasize form, color, and light.

Surface Curves

Describes the smooth or contoured lines on the surface of sculptures or designs that give the illusion of depth or movement.

Migrant Mother

A famous photograph by Dorothea Lange taken during the Great Depression, depicting a mother and her children, symbolizing the struggle and perseverance of that era.