Ivory Fast Delivery Company,an accrual basis taxpayer,frequently has claims for damages to property the company delivered.Often the claim is not filed until a month after the delivery.In the past,approximately 80% of the claims are paid by Ivory.In 2011,claims for $25,000 were filed.The company refused to pay $4,000 of the claims (because they were not valid),and paid $17,000.The remaining $4,000 in claims were processed and paid in January 2012.Also,in January 2012,claims for $8,000 were filed for deliveries made in 2011,and $6,000 was paid on these claims by March 15,2012.Ivory has not elected to use the recurring item exception to economic performance.Under the all-events and economic performance tests,Ivory can accrue as an expense for 2011:

Question

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Under the all-events test, the liability is fixed and determinable when the claim is filed. Under the economic performance test, the liability is satisfied when the claim is paid. Ivory can accrue $17,000 for the claims paid in 2011 and $4,000 for the claims paid in January 2012, for a total of $21,000.

Ivory Fast Delivery Company,an Accrual Basis Taxpayer,frequently Has Claims for Damages