Problem 4-37 (LO. 2) Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company's 2021 gross income assuming that the company uses any available options to defer its taxes. a. In December 2020, the company received a $1,200 advance payment from a customer for an appliance that Drake special-ordered from the manufacturer. The appliance did not arrive from the manufacturer until January 2021, and Drake immediately delivered it to the customer. The sale was reported in 2021 for financial accounting purposes. What amount is included in the 2021 gross income? b. In October 2021, the company sold a 6-month service contract for $240. The company also sold a 36-month service contract for $1,260 in July 2021. Assuming a calendar year-end, what amount is included in the 2021 gross income? c. On December 31, 2021, the company sold an appliance for $1,200. The company received $500 cash and a note from the customer for $700 and $260 interest, to be paid at the rate of $40 a month for 24 months. Because of the customer's poor credit record, the fair market value of the note was only $600. The cost of the appliance was $750. What amount is included in the gross receipts and what is the gross profit? The 2021 gross receipts from the transaction are $ and the gross profit from the transaction is $
Problem 4-37 (LO. 2) Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company's 2021 gross income assuming that the company uses any available options to defer its taxes. a. In December 2020, the company received a $1,200 advance payment from a customer for an appliance that Drake special-ordered from the manufacturer. The appliance did not arrive from the manufacturer until January 2021, and Drake immediately delivered it to the customer. The sale was reported in 2021 for financial accounting purposes. What amount is included in the 2021 gross income? b. In October 2021, the company sold a 6-month service contract for $240. The company also sold a 36-month service contract for $1,260 in July 2021. Assuming a calendar year-end, what amount is included in the 2021 gross income? c. On December 31, 2021, the company sold an appliance for $1,200. The company received $500 cash and a note from the customer for $700 and $260 interest, to be paid at the rate of $40 a month for 24 months. Because of the customer's poor credit record, the fair market value of the note was only $600. The cost of the appliance was $750. What amount is included in the gross receipts and what is the gross profit? The 2021 gross receipts from the transaction are $ and the gross profit from the transaction is $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 4-37 (LO. 2)
Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the
following transactions on the company's 2021 gross income assuming that the company uses any available options to defer its taxes.
a. In December 2020, the company received a $1,200 advance payment from a customer for an appliance that Drake special-ordered
from the manufacturer. The appliance did not arrive from the manufacturer until January 2021, and Drake immediately delivered it to
the customer. The sale was reported in 2021 for financial accounting purposes.
What amount is included in the 2021 gross income?
$4
b. In October 2021, the company sold a 6-month service contract for $240. The company also sold a 36-month service contract for
$1,260 in July 2021.
Assuming a calendar year-end, what amount is included in the 2021 gross income?
c. On December 31, 2021, the company sold an appliance for $1,200. The company received $500 cash and a note from the customer
for $700 and $260 interest, to be paid at the rate of $40 a month for 24 months. Because
the customer's poor credit record, the fair
market value of the note was only $600. The cost of the appliance was $750.
What amount is included in the gross receipts and what is the gross profit?
The 2021 gross receipts from the transaction are $
and the gross profit from the transaction is $
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