Gray Company,a calendar year taxpayer,allows customers to return defective merchandise for a full refund within 30 days of the purchase.In 2011,the company refunded $400,000 for claims involving sales.The $400,000 consisted of $350,000 in refunds from 2011 sales and $50,000 in refunds from 2010 sales.All of the refunds from 2010 sales were for claims filed in 2010 and were paid in January and February 2011.At the end of 2011,the company had $12,000 in refund claims for sales in 2011 for which payment had been approved.These claims were paid in January 2012.Also in January 2012,the company received an additional $30,000 in claims for sales in 2011.This $30,000 was paid by Gray in February 2012.With respect to the above,Gray can deduct:

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Gray Company can deduct $362,000 in 2011, which includes the $350,000 in refunds for 2011 sales and the $12,000 in approved refund claims for 2011 sales that were paid in January 2012. The $30,000 in claims received in January 2012 cannot be deducted in 2011 as they were not approved or paid in 2011.

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