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:

Adolescence

The transitional stage of physical and psychological development that occurs between childhood and adulthood.

Late Adulthood

The stage in human development characterized by advanced age, usually considered to begin around the age of 65.

Identity

The fact of being who or what a person or thing is; the characteristics determining this.

Integrity

A moral principle that involves being honest and having strong moral uprightness.