Taxpayer is on the cash method. On December 1, Taxpayer receives a signed agreement with Customer in which Customer agrees to Taxpayer $5,000 for restoring Customer's vehicle. Taxpayer completes the restoration on December 28. Not entirely pleased with the work, Customer pays Taxpayer $4,500 on January 5, Year 2. Taxpayer decides not to pursue the $500 difference. What are the results to Taxpayer? Taxpayer has no gross income in year 1 and $4,500 gross income in year 2. Taxpayer has gross income in year 1 of $5,000 because the agreement is a cash equivalent. Taxpayer is entitled to a deduction of $500 in year 2. Taxpayer has gross income of $4,500 in Year 1 because Taxpayers finds out before filing the Year 1 tax return that only $4,500 would be received. O Taxpayer has $5,000 gross income in Year 2 because Taxpayer voluntarily relinquished the claim to the remaining $500.
Taxpayer is on the cash method. On December 1, Taxpayer receives a signed agreement with Customer in which Customer agrees to Taxpayer $5,000 for restoring Customer's vehicle. Taxpayer completes the restoration on December 28. Not entirely pleased with the work, Customer pays Taxpayer $4,500 on January 5, Year 2. Taxpayer decides not to pursue the $500 difference. What are the results to Taxpayer? Taxpayer has no gross income in year 1 and $4,500 gross income in year 2. Taxpayer has gross income in year 1 of $5,000 because the agreement is a cash equivalent. Taxpayer is entitled to a deduction of $500 in year 2. Taxpayer has gross income of $4,500 in Year 1 because Taxpayers finds out before filing the Year 1 tax return that only $4,500 would be received. O Taxpayer has $5,000 gross income in Year 2 because Taxpayer voluntarily relinquished the claim to the remaining $500.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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f

Transcribed Image Text:Taxpayer is on the cash method. On December 1, Taxpayer receives a signed
agreement with Customer in which Customer agrees to Taxpayer $5,000 for
restoring Customer's vehicle. Taxpayer completes the restoration on
December 28. Not entirely pleased with the work, Customer pays Taxpayer
$4,500 on January 5, Year 2. Taxpayer decides not to pursue the $500
difference. What are the results to Taxpayer?
Taxpayer has no gross income in year 1 and $4,500 gross income in year 2.
O Taxpayer has gross income in year 1 of $5,000 because the agreement is a cash
equivalent. Taxpayer is entitled to a deduction of $500 in year 2.
Taxpayer has gross income of $4,500 in Year 1 because Taxpayers finds out before
filing the Year 1 tax return that only $4,500 would be received.
Taxpayer has $5,000 gross income in Year 2 because Taxpayer voluntarily relinquished
the claim to the remaining $500.
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