Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company's 2020 gross income assuming that the company uses any available options to defer its taxes.

a. In December 2019. the company received a $1,200 advance payment from a customer for an appliance that Drake special ordered from the manufacturer. The appliance did not arrive from the manufacturer until January 2019, and Drake immediately delivered it to the customer. The sale was reported in 20IS for financial accounting purposes.
b. In October 2019. the company sold a 6-month service contract for $240. The company also sold a 36-month service contract for $1,260 in July 2019.

The advance payment was issued throughout 2019, but perhaps the items were not shipped in 2019. The products will be shipped in 2020 as well as revenues for financial accounting requirements will be published in 2020. Thus, $1200 would include total sales for 2020.

So,

The $1200 total is reflected in the taxable profits for 2020.

(b)

The service contract, for 6 months will be:

⇒ [tex]Gross \ income=240\times \frac{3}{6}[/tex]

[tex]=120[/tex] ($)

The service contract, for 36 months will be:

⇒ [tex]Gross \ income = 1260\times \frac{6}{36}[/tex]

[tex]=210[/tex] ($)

In 2020, the total gross income included will be:

[tex]=120+210[/tex]

[tex]=330[/tex] ($)

So,

The amount $330 seems to be included throughout 2020 gross income.