Davidson Industries manufactures golf course maintenance equipment. The equipment comes with a 4-year warranty. Davidson's engineers estimate that approximately 10% of the equipment will be defective and require payment under the warranty. Discuss the propriety of allowing Davidson a deduction for warranty costs in the current year if

a. Davidson is a cash basis taxpayer.

b. Davidson is an accrual basis taxpayer.

In each of the following problems, identify the tax issue(s) posed by the facts presented.

Determine the possible tax consequences of each issue that you identify.