Gray Company, a calendar year taxpayer, allows customers to return defective merchandise for a full refund within 30 days of the purchase. In 2017, the company refunded $400,000 for claims involving sales. The $400,000 consisted of $350,000 in refunds from 2017 sales and $50,000 in refunds from 2016 sales. All of the refunds from 2016 sales were for claims filed in 2016 and were paid in January and February 2017. At the end of 2017, the company had $12,000 in refund claims for sales in 2017 for which payment had been approved. These claims were paid in January 2017. Also in January 2017, the company received an additional $30,000 in claims for sales in 2017. This $30,000 was paid by Gray in February 2018. With respect to the above, Gray can deduct:
A)$350,000 in 2017.
B)$362,000 in 2017.
C)$392,000 in 2016.
D)$442,000 in 2017.
E)None of the above.

Question

Quizplus · Accepted Answer

Gray can deduct $362,000 in 2017. This includes $350,000 of refunds paid for claims involving 2017 sales and $12,000 of approved but unpaid refund claims for 2017 sales at the end of the year. The $50,000 in refunds paid for claims involving 2016 sales are deductible in 2016, and the $30,000 in claims for 2017 sales paid in February 2018 are deductible in 2018.

Gray Company, a Calendar Year Taxpayer, Allows Customers to Return