Alpha Mechanical Corporation (AMC) is a calendar year, accrual method, C Corporation. AMC is engaged in the business of selling and servicing specialized manufacturing equipment in the Aerospace market. During the fourth quarter of 2022, AMC received the following payment: • Equipment Service Payment AMC received in full a $540,000 fee for an 18-month service contract on manufacturing equipment sold by AMC to its client, Delta Airlines. Under the contract terms, AMC will provide all routine maintenance and service work on the equipment from November 1, 2022, through April 30, 2024. The work is performed pro rata over the life of the contract. Please answer the following questions a. What amount of service income should AMC report in 2022, 2023, and 2024 on its financial accounting (GAAP) income statements? Please show your work and explain your calculations. b. What amount of service income should AMC report in 2022, 2023, and 2024 on its federal tax return? Please show your work and explain your calculations. 4

Alpha Mechanical Corporation (AMC) is a calendar year, accrual method, C Corporation. AMC is engaged in the business of selling and servicing specialized manufacturing equipment in the Aerospace market. During the fourth quarter of 2022, AMC received the following payment: • Equipment Service Payment AMC received in full a $540,000 fee for an 18-month service contract on manufacturing equipment sold by AMC to its client, Delta Airlines. Under the contract terms, AMC will provide all routine maintenance and service work on the equipment from November 1, 2022, through April 30, 2024. The work is performed pro rata over the life of the contract. Please answer the following questions a. What amount of service income should AMC report in 2022, 2023, and 2024 on its financial accounting (GAAP) income statements? Please show your work and explain your calculations. b. What amount of service income should AMC report in 2022, 2023, and 2024 on its federal tax return? Please show your work and explain your calculations. 4

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 63P

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

**Alpha Mechanical Corporation (AMC)** is a calendar year, accrual method, C Corporation. AMC is engaged in the business of selling and servicing specialized manufacturing equipment in the Aerospace market. During the fourth quarter of 2022, AMC received the following payment:

### Equipment Service Payment
AMC received in full a $540,000 fee for an 18-month service contract on manufacturing equipment sold by AMC to its client, Delta Airlines. Under the contract terms, AMC will provide all routine maintenance and service work on the equipment from November 1, 2022, through April 30, 2024. The work is performed pro rata over the life of the contract.

### Please answer the following questions
a. What amount of service income should AMC report in 2022, 2023, and 2024 on its financial accounting (GAAP) income statements? Please show your work and explain your calculations.

b. What amount of service income should AMC report in 2022, 2023, and 2024 on its federal tax return? Please show your work and explain your calculations.

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