Question

Donna Kidd is a world-famous author of children's books. She does readings and book signing across the country, with most sold out well in advance of a new publication. Write Kidds, Inc., a calendar-year S-corporation owned by Donna and her husband Daniel Kidd, recently sold tickets ($100,000) for Donna's scheduled appearances for the current year and next tax year. For financial statement purposes, Write Kidds, Inc. will recognize the income from the ticket sales when the readings/signings take place. For tax purposes, it uses the accrual method and would prefer to defer the income from the ticket sales until Donna reads/signs. This is the first time Write Kidds, Inc. has sold tickets one or two years in advance. Can the income be deferred until the readings/signings are scheduled to take place?

Answer 1

Answer;

Amount received against the scheduled appearance represent the advance received against the shows.Under accrual accounting it must recognize in the income statement only when the shows take place.For the tax purpose,business has to decide on method of accounting before filling of first business return.Accordingly,if the given corporation has already filed its business return using accrual method of accounting,then it can deferred the income until shows scheduled to take place.Otherwise corporation has to recognize the advanced received as income of the year in which it is received and consequently not allowed to defer the same.