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Reconciliation of financial to taxable income; deferred revenue

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The Tango Co. is an accrual-method, calendar-year taxpayer in the business of giving dance lessons. On November 1, 2009, Tango received an advanced payment of $4,800 for a two-year contract to provide up to 96 dance lessons ($50 per lesson). Tango provided eight lessons in 2009, 48 lessons in 2010 and 40 lessons in 2011. In its applicable financial statements, Tango recognized $400 in 2009, $2,400 in 2010 and $2,000 in 2011 as gross revenues.

Part A: How much of the $4,800 must Tango recognize for federal tax purposes in 2009, 2010 and 2011?

Part B: Provide a reconciliation adjustment from financial income to taxable income for 2009, 2010, and 2011.

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The expert examines reconciliation of financial to taxable income and deferred revenues.

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