Determine whether the taxpayer in each of the following situations has a claim of right to the income received:

a. Sulley’s Spa Spot sells hot tubs that have a 2-year warranty. The warranty provides for the replacement of all parts and the cost of labor to replace the parts. In addition, Sulley’s may replace the hot tub in lieu of repairing it. During the current year, Sulley’s hot tub sales total $250,000. Sulley’s estimates that 10 percent of all hot tubs sold will require warranty work.

b. In 2018, Retro Fit Construction Company purchased equipment by borrowing $100,000 from Fifth State Bank. After paying off $30,000 of the loan, Retro has financial problems in the current year and cannot afford to make its regular payment. Rather than have Retro default on the loan, Fifth State Bank agrees to reduce the debt to $50,000.

c. Larry’s Lawncare Service provides lawn mowing and fertilization services to residential customers. Customers can pay by the month, or they can purchase a one-season contract for $1,000. The contracts obligate Larry’s to provide the necessary mowing and fertilization from April through October. In September, Larry’s has a “pre-season” sale that lets current customers purchase next season’s contract for $800. Fourteen customers buy the discounted contract in September.

d. Alexander Associates does computer consulting for Bertman, Inc., in September. Bertman pays Alexander’s $3,000 bill for the work in October 2020. In late November, Bertman’s computer system crashes and Bertman sues Alexander, seeking reimbursement of $3,000. The lawsuit is scheduled for court in March 2021.