ABC Co. began business in February 2020. By the end of the calendar year, it had billed its clients for $3.5 million of services and had incurred $800,000 of operating expenses. As of December 31, it had collected $2.9 million of its billings and had paid $670,000 of its expenses. It expects to collect the remaining outstanding bills and pay the remaining expenses by March 2021. ABC Co. adopted a calendar year for federal tax purposes. It may use either the cash method or the accrual method of accounting on its first tax return. Assume ABC Co. uses a 5% discount rate to compute NPV.

Required:

1. Calculate Net Income under both; cash method and accrual method.

2. What will be the income to be deferred to 2021, tax on the income deferred and the NPV of deferred tax (discount factor of 5%=0.952)