Question

. LO.2 Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2019, the company repaired Samuel Mosley's car and charged him $1,000. Samuel did not think the problem had been fixed and refused to pay; thus, Trip refused to release the auto- mobile. In early January 2020, Trip made a few adjustments and convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only $900 because he did not have the use of the car for a week. Trip said “fine," accepted the $900, and released the automobile to Samuel. An IRS agent thinks Trip, as an accrual basis taxpayer, should report $1,000 of income in 2019, when the work was done, and then deduct a $100 loss in 2020. Prepare a memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income. Determine the effects of the following on a cash basis taxpayer's gross income for 2020 and 2021. If an amount is zero, enter "o". Gross Income 2020 Gross Income 2021 a. On December 31, 2020, the taxpayer received a $1,500 check from a customer. The taxpayer did not cash the check until January 3, 2021. b. On December 31, 2020, the taxpayer received a $1,500 check from a customer. The customer asked the taxpayer not to cash the check until January 3, 2021, after the customer's salary check could be deposited. C. On December 31, 2020, the taxpayer received a $1,500 check from a customer. The check was not received until after the bank had closed on December 31, 2020. The taxpayer did not cash the check until January 3, 2021.

Answer 1

In cash basis of accounting any income is recorded when received not accrued .

	2020	2021
a.On 2020 december 31 the check is received	1500	0
b.On 2020 december check is received but the customer says not to encash the check because of reduced balance in the account .	0	1500
c. The tax payer was unable to encash the check and the check was encashed on 2021 january 3	0	1500