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:

HTML

Hypertext Markup Language is the official markup language utilized for the construction and design of websites.

Circuit Switching

A method in telecommunications where a dedicated communication path is established between two points for the duration of the conversation.

DNS

Domain Name System, an internet service that translates domain names into IP addresses, allowing users to access websites with human-readable names.

DHCP

Dynamic Host Configuration Protocol (DHCP) is a network management protocol used to automate the process of configuring devices on IP networks, assigning IP addresses and other network settings.