Color, Inc., is an accrual basis taxpayer. In December 2017, the company received from a customer a $500 claim for defective merchandise. Color paid the customer in January 2018. Also, in December 2017, the company received a bill of $800 for office supplies that had been purchased and used in November 2017. The bill was not paid until January 2018. In January 2018, the company received a claim for $600 for defective merchandise purchased in 2017. Color paid the customer the $600 in February 2017. Assuming Color uses the recurring item exception to economic performance, the company's deductions for 2017 as a result of the above are:

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Under the recurring item exception, Color, Inc. can deduct the $500 claim paid in January 2018 and the $800 bill for office supplies incurred in 2017, totaling $1,300 for 2017. The $600 claim paid in February 2017 is not deductible in 2017 as it was not incurred in that year.