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?

---

Definitions:

Cell Membrane

The cell membrane is a biological membrane that separates the interior of all cells from the outside environment, controlling the movement of substances in and out of cells.

Axon

The long, slender projection of a neuron that conducts electrical impulses away from the neuron's cell body to other neurons or muscles.

Action Potential

A sudden, temporary reversal of the electrical charge across a neuron's plasma membrane, allowing neurons to transmit signals over long distances within the body.

Axon Hillock

The axon hillock is the part of a neuron that connects the cell body to the axon, playing a crucial role in the initiation of nerve impulses.