Copper Corporation, a C corporation, had gross receipts of $25 million in 2015, $26 million in 2016, and $23 million in 2017. Gold Corporation, a personal service corporation (PSC), had gross receipts of $24 million in 2015, $27 million in 2016, and $25 million in 2017. Which of the corporations will be allowed to use the cash method of accounting in 2018?
a. Copper Corporation only.
b. Gold Corporation only.
c. Both Copper Corporation and Gold Corporation.
d. Neither Copper Corporation nor Gold Corporation.
e. None of the above.

Explanation:

Corporation/businesses that qualify for cash based accounting:

• Individuals

• Service Business

• Custom Manufacturer

• Qualified Personal Service

• Farming Business

A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000.

Average = total earnings in 3 years/3

= ($25 million + $26 million + $23 million)/3

= 24.67 million

$24.67 million is less than $25 million

Therefore, copper corporation meets the criteria for cash based accounting.

Gold corporation is a personal corporation so it also meets rhe criteria for cash based accounting.