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R$.$E$.$M$.,$ a calendar$-$year corporation and Athens, Georgia band, recently sold tickets

$($$$20,000,000)$ for concerts scheduled in the United States for next year and the following

two years. For financial statement purposes, R$.$E$.$M$.$ will recognize the income from the

ticket sales when it performs the concerts, and R$.$E$.$M is obligated to return the ticket

payments should a concert be cancelled. For tax purposes, R$.$E$.$M$.$ uses the accrual method

and would prefer to defer the income from the ticket sales until after the concerts are

performed. This is the first time that it has sold tickets one or two years in advance.

Michael Stipe has asked your advice. Write a memo to Michael explaining your findings.

MEMO

Key Facts:

R$.$E$.$M$.,$ a calendar year corporation and Athens, Georgia, band, recently sold tickets

$($$$20,000,000)$ for concerts scheduled in the United States for next year and the following

two years. For financial statement purposes, R$.$E$.$M$.$ will recognize the income from the

ticket sales when it performs the concerts, and R$.$E$.$M is obligated to return the ticket

payments should a concert be cancelled. For tax purposes, it uses the accrual method

and would prefer to defer the income from the ticket sales until after the concerts are

performed.

This is the first time that it has sold tickets one or two years in advance. Michael Stipe

has asked your advice. Write a memo to Michael explaining your findings.

Question:

Should R$.$E$.$M$.$ include in current income advance sales of tickets for concerts scheduled

in future years?

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