Alpha Mechanical Corporation (AMC) 1is a calendar year, accrual method, C Corporation. AMC is engaged in the business of selling and servicing specialized manufacturing equipment in the Aerospace market. During the fourth quarter of 2023, AMC received the following payment:

Equipment Service Payment AMC received in full a $540,000 fee for an 18-month service contract on manufacturing equipment sold by AMC to its client, Delta Airlines. Under the contract terms, AMC will provide all routine maintenance and service work on the equipment from November 1, 2023, through April 30, 2025. The work is performed pro rata over the life of the contract.

Please answer the following questions. a. What amount of service income should AMC report in 2023, 2024, and 2025 on its financial accounting (GAAP) income statements? Please show your work and explain your calculations.

b. What amount of service income should AMC report in 2023, 2024, and 2025 on its federal tax return? Please show your work and explain your calculations.