Receipt of advanced payments
Response to the following problem:
On May 1, 20x1, an insurance company sells a three-year insurance policy to one of its customers. The cost of the premiums is $1,200. The insurance company uses the accrual basis and a calendar year
a. What amount of the $1,200 must the company include in its gross income over the term of the policy (20x1 - 20x4)?
b. Would your answer change if the company used the cash basis? Explain