BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1, year 0. It reported the following information for year 0. Indicate BCS's deductible amount for year 0 in each of the following alternative scenarios.
a. BCS provides two-year warranties on products it sells to customers. For its year 0 sales, BCS estimated and accrued $200,000 in warranty expense for financial accounting purposes. During year 0, BCS actually spent $30,000 repairing its product under the warranty.
b. BCS accrued an expense for $50,000 for amounts it anticipated it would be required to pay under the worker compensation act. During year 0, BCS actually paid $10,000 for workers compensation related liabilities.
c. In June of year 0, a display of BCS's product located in its showroom fell on and injured a customer. The customer sued BCS for $500,000. The case is scheduled to go to trial next year. BCS anticipates that it will lose the case and accrued a $500,000 expense on its financial statements.
d. Assume the same facts as in (c) except that BCS was required to pay $500,000 to a court-appointed escrow fund in year 0. If BCS loses the case in year 1, the money from the escrow fund will be transferred to the customer suing BCS.
e. On December 1 of year 0, BCS acquired equipment from Equip Company. As part of the purchase, BCS signed a warranty agreement with Equip so that Equip would warranty the equipment for two years (from December 1 of year 0 through November 30 of year 2) . The cost of the warranty was $12,000. BCS paid Equip for the warranty in January of year 1.