Colby Motors Uses the Accrual Method and Reports on a Calendar

question 35

Essay

Colby Motors uses the accrual method and reports on a calendar year. In December of last year, Colby acquired auto repair equipment. As part of the acquisition, Colby purchased a warranty agreement that requires the seller of the equipment to provide repairs on the equipment for three years. Colby paid the cost of the warranty, $15,000, in January of this year. What can Colby deduct for the cost of the warranty on the tax return for last year?

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Definitions:

Acetylcholine

A neurotransmitter important for learning, memory, and muscle movement.

Enzyme

A biological molecule that acts as a catalyst, speeding up chemical reactions in the body without being consumed or altered in the process.

Body Fluids

Liquids originating from inside the bodies of living organisms, which include blood, saliva, semen, and sweat, among others.

Central Nervous System

The primary information processing center of the body, consisting of the brain and spinal cord, responsible for processing and sending out signals.