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 $5,150 of consulting services in year 0 (a reasonable amount), but Nancy was only able to pay $3,250 of the bill by the end of this year. However, Nancy paid the remainder of the bill in the following year.

Problem 9-77 Part-a (Algo)

a. How much of the $5,150 consulting services will Hank include in his income this year if he uses the cash method of accounting? What amount can Nancy deduct this year for the consulting services?