Question

HomeSafe, an accrual basis, calendar year Corporation, sells and installs home alarm systems. The contract price of a system includes four free service calls. HomeSafe’s cost of each call is $75. At the end of 2015, HomeSafe accrued a $48,900 expense and a $48,900 liability for future service calls for systems sold in 2015. By September 15, 2016, Home-Safe had made 362 service calls for 2015 systems; from September 16 through December 31, 2016, HomeSafe made 122 additional service calls for 2015 systems.
a. If HomeSafe has not adopted the recurring item exception as its method of account-ing for service calls, how much of the $48,900 accrued expense can it deduct in 2015 and 2016?
b. If HomeSafe has adopted the recurring item exception as its method of accounting for service calls, how much of the $48,900 accrued expense can it deduct in 2015 and 2016?


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  • CreatedNovember 03, 2015
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