1.

Nancy operates a business that uses the accrual method of accounting. In December, Nancy asked her brother, Hank, to provide her business with consulting advice. Hank billed Nancy for $7,800 of consulting services in year 0 (a reasonable amount), but Nancy was only able to pay $3,900 of the bill by the end of year 0. However, Nancy paid the remainder of the bill in year

a. How much of the $7,800 consulting services will Hank include in his income in year 0 if he uses the cash method of accounting? What amount can Nancy deduct in year 0 for the consulting services?

Amount included by Hank: $_____________

Amount deducted by Nancy: $____________

b. How much of the $7,800 consulting services will Hank include in his income in year 0 if he uses the accrual method of accounting? What amount can Nancy deduct in year 0 for the consulting services?

Amount included by Hank: $_____________

Amount deducted by Nancy: $____________