1. What is the amount of income to be reported by Mr. X in Year 2 under the cash

Question

1. What is the amount of income to be reported by Mr. X in Year 2 under the cash method of accounting for the following items?

1.    Check for $1,200 received January 4, Year 2, for services rendered in December Year 1.

2.    Check for $900 received December 26, Year 2, for services rendered in October, Year 2; did not cash until January 5, Year 3.

3.    Dividend check for $500. The check was dated December 31, Year 2, but it is the practice of the issuing corporation to mail checks so they will not be received until January of the following year.

4.    Check for $600 received on April 1, Year 2, for interest on corporate bonds held for the period October 1, Year 1, through March 31, Year 2. Interest is paid semi-annually on April 1 and October 1.

5.    Rental income of $800 for December Year 2 received January 3, Year 3.

Explanation / Answer

Under Cash Method, Income are reported on the date on which cash are received and expenses are recorded on date when payments are made irrespective of fact when the transaction occurs

Income

Check received on January 4, Year 2, for services rendered in December Year 1 - $1,200
Check received December 26, Year 2, for services rendered in October, Year 2   - $ 900
Check received on April 1, Year 2, for interest on corporate bonds                   - $ 600

Amount of Income - 1200+900+600 = $ 2,700

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