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7 May, 02:25

Colbert operates a catering service on the accrual method. In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1st of year 1 through May 31st of year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

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  1. 7 May, 03:00
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    b) $500 is recognized in year 1 and $8,500 in year 2.

    Explanation:

    The calculation is shown below:

    Since the payment is received for 18 months of $9,000

    So for one month, the payment is

    = $9,000 : 18 months

    = $500

    This $500 should be recognized in year 1 and the remaining amount i. e

    = $9,000 - $500

    = $8,500

    This $8,500 should be recognized in year 2

    Hence, b option is correct
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