Ranger Athletic Equipment Uses the Accrual Method and Reports on a Calendar

question 117

Essay

Ranger Athletic Equipment uses the accrual method and reports on a calendar year. Ranger provides two-year warranties on all sales of equipment. This year, Ranger estimated warranty expense for book purposes, and he accrued $1 million of warranty expenses. However, during the year Ranger only spent $400,000 repairing equipment under the warranty. What can Ranger deduct for warranty expense on the tax return for this year?

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Definitions:

Base Wages

The initial or fundamental salary paid to an employee before any bonuses, benefits, or overtime are accounted for.

Lump-sum Merit Pay

A one-time payment given to an employee as a reward for performance, rather than a continuous salary increase.

Base Salary Levels

The foundational rate of pay before bonuses, benefits, or allowances are added, usually determined by role complexity and market rates.

Profit-sharing Plans

Compensation schemes where employees receive a share of the company's profits, typically in the form of bonuses or equity.