Dar a calendar year, accrual basis taxpayer, owns and operates a pool company. On December 2, 2020, he sent a final invoice to a customer for her pool remodel. The total invoice was $5,000. On December 18, 2020, the customer called and informed Dan that she would not pay the invoice because the pool did not meet the specifications outlined in the contract. Dan worked with the customer and the disagreement was finally resolved on January 18, 2021 for a final payment of $3,500. When and how much income must Dan report for tax purposes $3,500 in 2020 $5,000 in 2020 and a reduction of $1,500 to 2021 income $5,000 in 2021 $3,500 in 2021