Stokes Corporation sells and repairs equipment Stokes is an accrual basis, calendar year taxpayer In computing its taxable income for this year, it is uncertain about the treatment of the following three items and seeks your advice It repaired a machine for Shammy Co and submitted a bill for $7,000 Shammy Co paid $3,000 at delivery but did not pay the remaining $4,000 because the repairs were faulty By the end of the year Shammy Co still had not paid the $4,000 and had filed a claim to recover the $3,000 already paid to Stokes Stokes provides free service in the year of sale for equipment that it sells Included in the sales price (but unknown to its customers) is the cost of such service plus a profit Total sales this year were $300,000, of which $15,000 represented the cost of service and $5,000 represented the profit on said services However, the equipment is high quality, and no service calls were made this year Stokes does not know how to treat the $20,000 with respect to income and deductions Stokes rents its premises from ABC Rental for $2,000 per month In addition to making 12 monthly payments, Stokes paid $4,000 in January of 2020 for last November and December 2019 rents Also, in December of this year 2020, Stokes prepaid rent for next January 2021 ($2,000)

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Stokes Corporation sells and repairs equipment. Stokes is an accrual basis, calendar year taxpayer. In computing its taxable income for this year, it is uncertain

Stokes Corporation sells and repairs equipment. Stokes is an accrual basis, calendar year taxpayer. In computing its taxable income for this year, it is uncertain about the treatment of the following three items and seeks your advice:

It repaired a machine for Shammy Co. and submitted a bill for $7,000. Shammy Co. paid $3,000 at delivery but did not pay the remaining $4,000 because the repairs were faulty. By the end of the year Shammy Co. still had not paid the $4,000 and had filed a claim to recover the $3,000 already paid to Stokes.
Stokes provides free service in the year of sale for equipment that it sells. Included in the sales price (but unknown to its customers) is the cost of such service plus a profit. Total sales this year were $300,000, of which $15,000 represented the cost of service and $5,000 represented the profit on said services. However, the equipment is high quality, and no service calls were made this year. Stokes does not know how to treat the $20,000 with respect to income and deductions.
Stokes rents its premises from ABC Rental for $2,000 per month. In addition to making 12 monthly payments, Stokes paid $4,000 in January of 2020 for last November and December 2019 rents. Also, in December of this year 2020, Stokes prepaid rent for next January 2021 ($2,000).