Question
Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a long-term contract. The gross
Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a long-term contract. The gross contract price was $3,820,000. Jebali finished construction in 2020 at a cost of $3,438,000. However, Samson insisted that Jebali redo the doorway; otherwise, the contract price would be reduced. The estimated cost of redoing the doorway is $175,800. In 2021, the dispute is settled and Jebali fixed the doorway at a cost of $140,640.
a. How much must Jebali include in gross income for these items? What amount of deductions is Jebali allowed for 2020? Jebali must include $fill in the blank 1 in gross income and is allowed deductions of $fill in the blank 2 for 2020.
b. In 2021, how much must Jebali include in gross income? What amount of expenses can Jebali deduct in that year? In 2021, Jebali must include $fill in the blank 3 gross income and may deduct $fill in the blank 4 as expenses in that year.
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