Gray Company, a Calendar Year Taxpayer, Allows Customers to Return

question 20

Multiple Choice

Gray Company, a calendar year taxpayer, allows customers to return defective merchandise for a full refund within 30 days of the purchase.In 2019, the company refunded $400,000 for claims involving sales.The $400,000 consisted of $350,000 in refunds from 2019 sales and $50,000 in refunds from 2018 sales.All of the refunds from 2018 sales were for claims filed in 2018 and were paid in January and February 2019.At the end of 2019, the company had $12,000 in refund claims for sales in 2019 for which payment had been approved.These claims were paid in January 2019.Also in January 2020, the company received an additional $30,000 in claims for sales in 2019.This $30,000 was paid by Gray in February 2020.With respect to the above, Gray can deduct:

• A)$350,000 in 2019.
• B)$362,000 in 2019.
• C)$392,000 in 2018.
• D)$442,000 in 2019.
• E)None of these.

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Definitions:

Entrance Fee

A charge for admission, often paid at the entrance of a facility, event, or establishment.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in its price; it quantifies the sensitivity of demand relative to price changes.

Percent Change

A mathematical calculation that describes the degree of change over time, expressed as a percentage.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded for a given period.