Question

Kathy, an accrual basis taxpayer, operates a gym. She sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $300 ($300/12 = $25 per month); a two-year membership costs $576 ($576/24 = $24 per month). Cash payment is required at the beginning of the membership. On July 1, Year 1, Kathy sold a one-year membership and a two-year membership. Assume both customers started using the memberships on July 1, Year 1. a. Determine the amount of income Kathy recognizes in Year 2 from the one-year contract b. Determine the amount of income Kathy recognizes in Year 2 from the two-year contract

Answer 1

Solution :- P. Nol an As per the provide data about the Kathy, accrual basis taxpayed, operates a gym...... a) * one year Contract is for $300 ie $25 for 12 months * out of which 6 months has been expired in year I ne from July to December * Therefore 6 months remains for year Q. Amount of income to be recognized ५ year Contract in year 2 $85x6 $150 one in yead Two year Contract is for $576 ie $ au for Q4 months. out of which 6 months has been expired live from July to December * Therefore 18 months remains, 12 months for year 2 and 6 months for year 3 Amount of income to be recognized for two yeoul Contract in year 2= $24x12 $ 288