Solutions Corporation a computer vendor and consulting company used the accrual method of accounting. Its tax year is the calendar year. The following are three of the corporations transactions during the current year.
1. Solutions Corporation hired a contractor to remodel its sales floor. The contractor completed the remodeling on 11/30. On 12/15 Solutions received a $21000 bill from the contractor. Solutions immediately contracted the contractor to contest the $8000 labor charge included in the total bill, which Solutions claims should only be $7000. Solutions made no payment on the bill.
2. Solutions offers a 2-year warranty on all of its conputer systems. For sales of computers in the current year, it paid $11500 to service warranties during the current tax year, and it expects to pay $12000 to fulfill the remaining warranty obligations next year.
3. Every year Solutions offers a series of six trade seminars from 11/1-03/31. It receives all registration fees from participants by 10/01 before the seminars begin. As of 12/31two of the six seminars are completed, and the next seminar is scheduled for Jan. 14-15. The expense incurred in performing the seminars are routine each year. On the first of each month from Nov - Mar Soluctions pays the $625 monthly rent for the seminar location. On 09/16, Solutions signs a contract with the seminar teacher, a computers expert and excellent public speaker. The contract requires Solutions to pay the teacher $900 after each seminar, a total of $5400. On 10/03, Solutions signs a contract with a local printing company, which will provide text materials for the seminars. Solutions pays the printer $350 after each seminar's materials are delivered the day before the seminar.
a. How should Solutions treat these transaction? What rules apply?
b. How would the answer change if Solutions were a cash-method taxpayer?
Let's start by looking at the question. It has three parts that need to be addressed: the flooring bill, warranty services, and seminars.
With regards to the disputed flooring bill, under the accrual-based accounting method, "sales are recorded when the sale occurs; it doesn't matter when the money is actually received." Cash-based accounting records transactions as they occur, not projected. MoneyInstructor.com (http://www.moneyinstructor.com/doc/accrualbased.asp) has good information on the two. So, under accrual-based the $21000 would be recorded as an account payable; under ...
Accounting questions regarding a company that sells computers and computer training. Talks about its flooring bill, warranty services, and seminars and how to account for them using accrual and cash methods.