Question

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

• A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
• The company both incurred and paid expenses for the following in 2020:
  • Wages:                                                                               $3,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $2,000
• The company both incurred and paid expenses for the following in 2021:
  • Wages:                                                                               $4,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $3,000

1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
   
   
   
   
   
   
   
5. (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
   Circle the best answer below.
   i. The sum of the two years for the accrual method should be greater than the sum of the
       two years under the cash method.
   ii. The sum of the two years for the accrual method should be less than the sum of the
       two years under the cash method.
   iii. The sum of the two years for the accrual method should be equal to the sum of the
       two years under the cash method.
   

Answer 1

a. Computation of net profit(loss) of John Deere as per accrual metod for year 2020

Profit(Loss) Account for the year-end December 2020

Particulars	Debit($)	Particulars	Credit($)
Wages	3000	Income	12000
Rent	4000	Net Loss	12000
Repairs	2000
Provision for doubtful debts	3000
Advance Income	12000

.

b. Computation of net profit(loss) of John Deere as per accrual metod for year 2021

Profit(Loss) Account for the year-end December 2021

Particulars	Debit($)	Particulars	Credit($)
Wages	4000	Income	21000
Rent	4000	Provision for doubtful debts	3000
Repairs	3000
Net Profit	13000

c. Computation of net profit(loss) of John Deere as per cash method for the year 2020

Profit(Loss) Account for the year-end December 2020

Particulars	Debit($)	Particulars	Credit($)
Wages	3000	Income	12000
Rent	4000
Repairs	2000
Net Profit	3000

d. Computation of net profit(loss) of John Deere as per cash method for year 2021

Profit(Loss) Account for the year-end December 2021

Particulars	Debit($)	Particulars	Credit($)
Wages	4000	Income	9000
Rent	4000	Net Loss	2000
Repairs	3000