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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Universal Leasing leases electronic equipment to a variety of businesses. The company's primary…

A: Amount $Amount to be recovered38,000Less: Present value of the BPO price…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Prepare the appropriate journal entries for the lessee from the beginning of the lease through the…

A: Lease is an agreement between lender of asset to user of asset in return of consideration, where…

Q: Flint Inc. was incorporated in 2019 to operate as a computer software service firm, with an…

A: A rental lease refers to a lease whereby the tenant pays a specific measure of lease in return for…

Q: Modern Engineering (ME) entered into a contract for 3-year maintenance services with a manufacturing…

A: A Long-term service revenue is completed over more than one year period. The revenue is recorded…

Q: January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, lease…

A: An organization's accounting system uses a journal entry to document a financial transactions. It…

Q: Required: 1. Prepare appropriate Journal entries recorded by Nath-Langstrom Services for the first…

A: Journal Entry in the Books of Lessee:DateParticulars Debit Credit 1/1/2024Lease asset ( Computer)…

Q: Larkspur Financial Services performs bookkeeping and tax-reporting services to startup companies in…

A: Date Account Titles and Explanation Debit Credit Jan. 1, 2020 Cash $10,500…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: An organization's accounting system uses a journal entry to document a financial transactions. It…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: An equipment lease is a contract where an owner of the equipment allows another company or party to…

Q: Delta Spirit, Inc. entered into a contract to sell equipment to Wilco, LLC on October 1, 2021. Along…

A: When the consideration received for the sale included not only the sale of goods but also includes…

Q: The Naples Company uses the overtime/percentage-of-completion method and the point in-…

A: Lets understand the basics.Using percentage method, the gross profit recognized during the period on…

Q: Derating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other…

A: An organization's accounting system uses a journal entry to document a financial transactions. It…

Q: Please help me in accordance with IFRS 15 Modern Engineering (ME) entered into a contract for 3 -…

A: A Long-term service revenue is completed over more than one year period. The revenue is recorded…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: Journal entries are part of accounting system which records the day-to-day business related monitory…

Q: On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased…

A: A lease is a legal contract between a landlord (lessor) and a tenant (lessee) that grants the lessee…

Q: On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment.…

A: SOLUTION-A NO PERFORMANCE OBLIGATION IS PRESENT IN THE CONTRACT . IT IS TO BE NOTED THAT THE COUNTRY…

Q: Receipts from contracts are credited to unearned service contract revenue.

A: Fajardo Company First Year Contract : 200,000 ( 500,000*40% ) Second Year…

Q: Torrey Co. manufactures equipment that is sold or leased. On December 31, 2018, Torrey leased…

A: Income from lease transactions refers to the revenue earned by a person or a business entity from…

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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

Step 2: Answer a

Step 3: Answer b

Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. . The contract calls for four rent payments of $18,500 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $107,000 and were expected to have a useful life of five years with no residual value. . Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1, FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.
Denim, Inc. entered into a contract to sell equipment to Levi LLC. on October 1, 2021. Along with the equipment, Denim Inc. will provide one-year maintenance services on an as-needed basis, beginning once the equipment is installed. Denim offers similar services to other customers that purchased equipment sold by other vendors for $20,000. Denim Inc. will also provide installation services at no additional cost, a service that Denim Inc. typically charges $10,000. The equipment normally sells for $170,000 on its own. For the package deal, Levi LLC. agrees to pay a total of $180,000. The equipment was delivered and installed on November 1, 2021. Levi LLC. paid the entire invoice in cash on the delivery and installation date. How much revenue should Denim Inc. allocate to the various performance obligations in the above contract (round to the nearest dollar, if needed)? Prepare the Journal Entry for Denim Inc. to record the sale. Assume the equipment cost Denim Inc. $100,000 to…
On January 15, 2023, Caramel Company enters into a contract to build custom equipment for Candy Company. The contract specified a delivery date of of March 1. The equipment was not delivered until March 31. the contract required full payment of $75,000 30 days after delivery. the revenue for this contract should be
On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years with no residual value. . Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) • Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your…
On June 1, 2023, Cali Company entered into a contract to buy equipment for $15,000 from Belt Supply. The contract required Cali to pay $15,000 in advance on June 1, 2023. The equipment was delivered on July 3, 2023. The journal entry on Bolt's books to record the contract on June 1, 2023 includes
On January 2, 2021, A Company signed an agreement to operate as a franchisee of B for an initial franchise fee of P2,250,000 for 10 years. Of this amount, P420,000 was paid when the agreement was signed and the balance payable in four annual payments beginning on December 31, 2021. The company issued a promissory note for the balance, the relevant interest rate being 24%. Assume that substantial services amounting to P333,960 had already been rendered by B and that additional indirect franchise cost of P56,400 was also incurred. The franchisee started operations during 2021 with a total sales of P360,000. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. If needed, the PV factor is 2.40. Assuming the note is non-interest-bearing and its collection is reasonably assured, calculate the net income reported by B on the franchise for the year ended December 31, 2021. Assuming the note is interest-bearing and its…