Generally, Deductions for Additions to Reserves for Estimated Future Costs

question 4

Multiple Choice

Generally, deductions for additions to reserves for estimated future costs (e.g., an allowance for estimated warranty costs) are not allowed for Federal income tax purposes because allowing the deduction would:

• A) Result in a mismatching of revenues and expenses.
• B) Violate established public policy.
• C) Violate the all events test and economic performance requirement.
• D) Violate the tax benefit rule.
• E) None of the above.

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Definitions:

Bank Panics

Situations in which a large number of bank customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.

Deposits Reserve

Funds that banks are required to hold in reserve, either in their vaults or at a central bank, as a safeguard against bank runs and to ensure liquidity.

Greenbacks

A term historically used to refer to paper currency issued by the United States during the Civil War, recognized by their green coloring.

Gold Standard

A monetary system in which the value of a country's currency is directly linked to gold, ensuring stability and trust in the currency.