Unex Company Is an Accrual Basis Taxpayer

question 19

Multiple Choice

Unex Company is an accrual basis taxpayer. This year, an employee sued Unex for unlawful age discrimination, and the company's auditors required it to accrue a $500,000 liability for the estimated expense of settling this lawsuit. Which of the following statements is true?

• A) Unex can deduct the accrued expense only if it makes a written disclosure to the IRS of the contingent liability.
• B) Unex will be allowed a deduction in the year in which its liability for the settlement becomes fixed and the amount of the settlement can be estimated with reasonable accuracy.
• C) Unex will be allowed a deduction in the year that it actually pays the settlement to the employee.
• D) Unex can never deduct any expense in connection with this lawsuit.

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Definitions:

Prostate Cancer

A type of cancer that occurs in the prostate gland, primarily affecting men, especially those older in age.

Endometriosis

A disorder in which the endometrium (lining of the uterus) grows outside the uterus.

Uterine Tissue

The muscle and lining tissues that make up the uterus (womb), which play a key role in menstruation, pregnancy, and childbirth.

Breast Lumps

Abnormal growths or masses in the breast, which can be benign or indicative of breast cancer.