Question

ABC Company provided the following income items to its outside accountant. This is the first time the accountant has worked with ABC, and during the initial meeting she failed to ask if ABC is an accrual basis taxpayer or a cash basis taxpayer. Calculate ABC’s income using both methods so the accountant is ready for her next meeting with them. You are calculating ABC’s income as of December 31, 2018. Include explanations in your calculation. (4 POINTS) $10,000 received December 31, 2018 for advertising services to be rendered in January 2019 $3,500 for a pending lawsuit which should be settled in March 2019 – ABC is the plaintiff and is expected to win the suit and receive the proceeds March of 2019. $13,500 received December 15, 2018 for advertising services rendered in October 2018 $15,000 for advertising services rendered in November 2018; however, the check was left with the brother of the CEO of ABC. Both the brother and the CEO saw each other at a Christmas party on December 30, 2018 and the brother offered to go to his car to get the check for the CEO. The CEO declined because he didn’t want the party to turn into a business party. Check was not received and cashed by the CEO January 15, 2019?

Answer 1

ACCRUAL BASIS Dec 31, 2018 $10,000 (No amount is considend as it is related to next year income in accrual baris income is considered when work is done) $3,500 (It is related to next tris ancial year so it is not considend) Oct 2018 $13,500 (here it is considered because work is con done in the current Financial year & income is considend when work is done wenthough it is d' received on Dec 15, 2018 but in booke it booked on oct 2018) Nov 2018 $15,000 (even he con rueves or not income is considered for the current Financial year) Income per accernal Basis $13,500 & 15,000 $ 2800

CASH BACIS Dec 31, 2018 10000 It is considered in considered when for current year in cash bane income it is receine irrespective of coordone (43,000) Even laweriets falle in next year we paid the amount in curent you Dec 15, 2014 (The un come should be booked on Dec 13, 2018) $13,000 Dec 30, 2018 (Even the semices are already eindeed still the income is yet to come we cannot considered) Cach Bare $ 10,000 $ (3,500) $ 13,500 $ 20,00D