Solutions Corporation, a computer vendor and consulting company, uses the accrual method of accounting. Its tax year is the calendar year. The following are three of the corporation's transactions during the current year:
1. Solutions Corporation hired a contractor to remodel its sales floor. The contractor completed the remodeling on November 30. On December 15, Solutions received a $5,000 bill from the contractor. Solutions immediately contacted the contractor to contest $1,000 of the total charges, arguing that it exceeded the price that was agreed upon. Solutions didn't make any payment on the bill during its current tax year.
2. Solutions offers a 2-year warranty on all of its computer systems. For sales of computers in the current year, it paid $11,500 to service warranties during the current tax year, and it expects to pay $12,000 to fulfill the remaining warranty obligations next year.
3. Every year, Solutions offers a series of six trade seminars from November 1 through April 30. It receives all registration fees from participants by October 1, before the seminars begin. As of December 31, two of the six seminars are completed, and the next seminar is scheduled for January 14-15. The expenses incurred in performing the seminars are routine each year. On the first of each month from November through April, Solutions pays the $625 monthly rent for the seminar location. On September 16, Solutions signs a contract with the seminar teacher, a computers expert and excellent public speaker. The contract requires Solutions to pay the teacher $900 after each seminar, a total of $5,400. On October 3, Solutions signs a contract with a local printing company, which will provide text materials for the seminars. Solutions pays the printer $350 after each seminar's materials are delivered the day before the seminar.
Required:
a. How should Solutions Corporation treat these transactions? What rules apply?
b. How would your answers change for each of the transactions if Solutions Corporation were a cash-method taxpayer?