1. What is the amount of income to be reported by Mr. X in Year 2 under the cash method of accounting for the following items?

Check for $1,200 received January 4, Year 2, for services rendered in December Year 1.

Check for $900 received December 26, Year 2, for services rendered in October, Year 2; did not cash until January 5, Year 3.

Dividend check for $500. Check was dated December 31, Year 2, but it is the practice of the issuing corporation to mail checks so they will not be received until January of the following year.

Check for $600 received on April 1, Year 2, for interest on corporate bonds held for the period October 1, Year 1, through March 31, Year 2. Interest is paid semi-annually on April 1 and October 1.

Rental income of $800 for December Year 2 received January 3, Year 3.

2. Basil Company, a cash-basis taxpayer, had the following activity during Year 2:

Sales in Year 2, uncollected	$ 40,000
Sales in Year 2, collected	1,000,000
Total sales in Year 2	1,040,000
Collections on Year 1 bad debt	50,000

What is the correct amount of income to be reported for Year 2?

Answer rating: 100% (QA)

1 Under the cash method of accounting income is generally recognized when it is received Lets calculate the amount of income to be reported by Mr X in ... View the full answer