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Colby Motors uses the accrual method and reports on a calendar year. In December of last year, Colby acquired auto repair equipment. As part of
Colby Motors uses the accrual method and reports on a calendar year. In December of last year, Colby
acquired auto repair equipment. As part of the acquisition, Colby purchased a warranty agreement that requires
the seller of the equipment to provide repairs on the equipment for three years. Colby paid the cost of the
warranty, $ in January of this year. What can Colby deduct for the cost of the warranty on the tax return
for last year?
Blackwell Manufacturing uses the accrual method and reports on a calendar year. This year a customer was
injured when visiting the Blackwell factory. The customer sued the company for $ and the case is still
being litigated. However, Blackwell's attorney expects that the company will pay at least $ to settle the
claim. What amount, if any, can Blackwell deduct for the expected claim settlement this year?
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