Dana, an accountant, reports her income by the cash method. In 2012, she per formed an audit for Orange Corporation and billed the client for $5,000, which was collected in 2013. In 2012, Dana also performed an audit for Blue Corporation. Because of Blue’s precarious financial position, Dana required Blue to issue an $8,000 secured negotiable note in payment of the fee. The note had a fair market value of $6,000. Dana collected $8,000 on the note in 2013. Dana’s gross income for the two years is as follows:
|
2012 |
2013 |
|
|
Fair market value of note received from Blue |
$6,000 |
|
|
Cash received |
|
|
|
From Orange on account receivable |
|
$ 5,000 |
|
From Blue on note receivable |
|
8,000 |
|
Less: Recovery of capital |
|
(6,000) |
|
Total gross income |
$6,000 |
$ 7,000 |