An accrual basis taxpayer

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Reference no: EM13332137

For each of the following independent situations, state which concept(s) is (are) responsible for the treatment and EXPLAIN how each concept is applied.
1. 1. Alabama Construction, Inc., an accrual basis taxpayer, billed a client in December 2014 $12,000 for services performed. In March 2015, the corporation received a check from the client for $10,000. Included with the check was a letter stating that some of the services were not performed correctly. After investigating the matter, Alabama Construction agreed that the customer was correct. Alabama Construction must include $12,000 in its 2014 income, but will take a deduction of $2,000 in 2015.
2. 5. Nebraska Corporation receives a $12,000 bill for legal fees from its attorney in December 2014. The corporation paid the bill promptly and deducted the $12,000 as a legal expense in 2014. During the audit of its financial statements, the auditor determines that the attorney had double billed the corporation for $3,000 of expenses. The attorney agrees with the auditor and sends Nebraska a check for $3,000 in April. Nebraska must recognize $3,000 of income in 2015.

Reference no: EM13332137

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