Gray Company,a calendar year taxpayer,allows customers to return defective merchandise for a full refund within 30 days of the purchase.In 2014,the company refunded $400,000 for claims involving sales.The $400,000 consisted of $350,000 in refunds from 2014 sales and $50,000 in refunds from 2013 sales.All of the refunds from 2013 sales were for claims filed in 2013 and were paid in January and February 2014.At the end of 2014,the company had $12,000 in refund claims for sales in 2014 for which payment had been approved.These claims were paid in January 2015.Also in January 2014,the company received an additional $30,000 in claims for sales in 2014.This $30,000 was paid by Gray in February 2015.With respect to the above,Gray can deduct:

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The $350,000 claims paid in 2014 for 2014 sales are deductible in that year.The $50,000 in claims from 2013 sales should have been deducted in 2013 under the recurring item exception.The $12,000 paid in January 2015 for sales in 2014 can be deducted in 2014 under the recurring item exception.The all-events test was satisfied in 2014when claims for $12,000 were approved.Economic performance (payment)occurred within 8 1/2 months after the end of 2014.The all-events test was not satisfied for the $30,000 of claims for 2014 sales that were received in January 2015 and paid in February 2015.

Gray Company,a Calendar Year Taxpayer,allows Customers to Return Defective Merchandise