Nancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother,
Question:
Nancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother, Hank, to provide her business with consulting advice. Hank billed Nancy for $7,200 of consulting services in year 0 (a reasonable amount), but Nancy was only able to pay $3,900 of the bill by the end of year 0. However, Nancy paid the remainder of the bill in year
a. How much of the $7,200 consulting services will Hank include in his income in year 0 if he uses the cash method of accounting? What amount can Nancy deduct in year 0 for the consulting services?
Amount included by Hank: $_____________
Amount deducted by Nancy: $____________
b. How much of the $7,200 consulting services will Hank include in his income in year 0 if he uses the accrual method of accounting? What amount can Nancy deduct in year 0 for the consulting services?
Amount included by Hank: $_____________
Amount deducted by Nancy: $____________
South Western Federal Taxation 2016 Corporations Partnerships Estates and Trusts
ISBN: 9781305399884
39th edition
Authors: James Boyd, William Hoffman, Raabe, David Maloney, Young