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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Nancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother, Hank, to
provide her business with consulting advice. Hank billed Nancy for $5,000 of consulting services in year 0 (a reasonable
amount), but Nancy was only able to pay $3,000 of the bill by the end of this year. However, Nancy paid the remainder of
the bill in the following year.
a. How much of the $5,000 consulting services will Hank include in his income this year if he uses the cash method of accounting?
What amount can Nancy deduct this year for the consulting services?
Amount included by Hank
Amount deducted by Nancy](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87f377c8-556b-40c3-ad73-583aac17d9d0%2F84fc8519-7176-4c71-bf64-b55f5584d017%2Fp8jx51q_processed.png&w=3840&q=75)
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Required information
[The following information applies to the questions displayed below.]
Nancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother, Hank, to
provide her business with consulting advice. Hank billed Nancy for $5,000 of consulting services in year 0 (a reasonable
amount), but Nancy was only able to pay $3,000 of the bill by the end of this year. However, Nancy paid the remainder of
the bill in the following year.
a. How much of the $5,000 consulting services will Hank include in his income this year if he uses the cash method of accounting?
What amount can Nancy deduct this year for the consulting services?
Amount included by Hank
Amount deducted by Nancy
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