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Schmutte Corp. receives $48,000 on October 1, Year 1, as full payment for a four-year service contract with a new customer for the period 10/1/Y1-9/30/Y5.

Schmutte Corp. receives $48,000 on October 1, Year 1, as full payment for a four-year service contract with a new customer for the period 10/1/Y1-9/30/Y5. Schmutte Corp. uses the accrual method of accounting. What income should Schmutte Corp. report on its returns for years 1 and 2?

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$3,000 in Year 1 and $45,000 in Year 2.

$48,000 in Year 1 and none in Year 2.

None in Year 1 and $48,000 in Year 2.

$3,000 in Year 1 and $12,000 in Year 2.

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