Color,Inc. ,is an accrual basis taxpayer.In December 2014,the company received from a customer a $500 claim for defective merchandise.Color paid the customer in January 2015.Also,in December 2014,the company received a bill of $800 for office supplies that had been purchased and used in November 2014.The bill was not paid until January 2015.In January 2015,the company received a claim for $600 for defective merchandise purchased in 2014.Color paid the customer the $600 in February 2014.Assuming Color uses the recurring item exception to economic performance,the company's deductions for 2014 as a result of the above are:
A)$500.
B)$600.
C)$800.
D)$1,300.
E)$1,900.

Question

Quizplus · Accepted Answer

The all-events test was not satisfied in 2014 for the $600 claim for defective merchandise because the customer had not filed a claim in that year.The economic performance test was satisfied for the office supplies ($800)when they were delivered (i.e. ,the other party provided the property).The all-events test was satisfied in 2014 for the $500 customer claim and the economic performance test was also satisfied when the payment was made within 8 1/2 months after year end.

Color,Inc ,Is an Accrual Basis Taxpayer