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12 March, 20:03

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year), or two years in advance ($960). In September 2018, the company collected the following amounts applicable to future services: October 2018-September 2020 services (200 two-year contracts) $192,000 October 2018-September 2019 services (200 one-year contracts) 120,000 Total $312,000 As a result of the above, Orange Cable should report as gross income for 2019: $54,000 $78,000 $258,000 $312.000

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  1. 12 March, 21:38
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    2019 revenue 186,000

    Explanation:

    on accrual basis it will recognize based on past of time rather than cash collection and disbursements

    Accrued revenue for september sales:

    $ 192,000 contracts for 2 years

    we dvide by 24 month to get the value per month and then, multiply by the expired months to recognize gain attributable to 2019:

    192,000 / 24 months x 12 months standing for 2019: 96,000

    Now, we calcualte for 1 year contract:

    120,000 for a year during 2019 this will be outstanding from January 1st to September 30th 2019

    A total of 9 monhs so:

    120,000 x 9/12 = 90,000

    In total during 2019 it will recognize revenue for: 96,000 + 90,000 = 186,000
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