Color,Inc. ,is an accrual basis taxpayer.In December 2015,the company received from a customer a $500 claim for defective merchandise.Color paid the customer in January 2016.Also,in December 2015,the company received a bill of $800 for office supplies that had been purchased and used in November 2015.The bill was not paid until January 2016.In January 2016,the company received a claim for $600 for defective merchandise purchased in 2015.Color paid the customer the $600 in February 2015.Assuming Color uses the recurring item exception to economic performance,the company's deductions for 2015 as a result of the above are:

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Under the recurring item exception, economic performance is deemed to occur on a ratable basis over the period to which the item relates. In this case, the $500 claim and $800 bill both relate to the 2015 tax year, so they can be deducted in that year, even though payment was not made until January 2016. The $600 claim relates to merchandise purchased in 2015 and paid for in 2016, so it cannot be deducted until 2016. Therefore, the total amount of deductions for 2015 is $500 + $800 = $1,300. Choice D is the only option that reflects this amount.

Color,Inc ,Is an Accrual Basis Taxpayer