Glass Bottle Coffee Company is a calendar year accrualbasis

Glass Bottle Coffee Company is a calendar year, accrual-basis taxpayer. On October 1, 2017, Glass Bottle sold a 24-month subscription contract for $2,400. The client paid the full amount in cash. Under the contract, Glass Bottle delivers 20oz fresh, artistically roasted coffee beans to the client on the 15th of every month. The service periods covers October 1, 2017 to September 30, 2019. • For tax purposes, if Glass Bottle wants to defer income recognition (to the extent allowed by tax law), how much income it should recognize in 2017? In 2018? In 2019?

Solution

According to the income tax laws if a taxpayer fulfiils certain conditions than he is allowed to pay income tax using installment sales method ,accordingly income is reported using cash basis system rather than accrual basis of accounting.

income to be recognize in year 17= 6 months = $100 per month = $600

2018= 12 months = $ 100*12=$1200

2019=6 months= $100*6=$600