Determine the Proper Tax Year for Gross Income Inclusion in Each

question 33

Essay

Determine the proper tax year for gross income inclusion in each of the following cases.
a. A cash basis landlord makes new tenants pay first and last month's rent at the start of the lease. How does the landlord report these items?
Purple Corporation, an exterminating company, is a calendar year taxpayer. It contracts to
b. provide service to homeowners once a month under a one-, two-, or three-year contract. For financial reporting purposes, Purple reports the income ratably over the months of the contract. On April 1 of the current year, the company sold a customer a one-year contract for $120. How much of the $120 is taxable in the current and subsequent years if the company is an accrual basis taxpayer? If the $120 is payment on a two-year contract, how much is taxed in the year the contract is sold and in the following years? If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following years?
d. The taxpayer is in the office equipment rental business and uses the accrual basis of accounting. In December he collected $5,000 in rents for the following January. When is the
$5,000 taxable?
c. Pink, Inc., an accrual basis taxpayer, owns an amusement park whose fiscal year ends September 30. To increase business during the fall and winter months, Pink sold passes that would allow the holder to ride "free" during the months of October through March. During the month of September, $6,000 was collected from the sale of passes for the upcoming fall and winter. When will the $6,000 be taxable to Pink?

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Definitions:

Overhead Costs

Expenses related to the operation of a business that are not directly tied to a specific product or service.

Support Activity Costs

Costs incurred by activities that do not directly produce a product or service but are essential to the organization's operation, such as HR and IT.

Support Department Costs

Expenses associated with functions that benefit the entire organization, such as human resources and IT services.

Indirect Costs

Costs that are not identified with or traced to a cost object.