DRT Company is a manufacturer of gasoline-powered go-karts and other power products. DRT is a calendar-year, accrual-basis taxpayer. DRT generally files their tax return by the extended due date (9 months following the close of the tax year). In late December, representatives of DRT ask for your assistance in determining the appropriate deduction for the current year for 10 different items described in the chart below. DRT is willing to elect the recurring item exception for any item listed, and all amounts are assumed to be material. In addition, DRT also has two specific questions regarding the reporting of intangibles related to (1) the acquisition of a business during the year and (2) the disposition of two intangibles from an acquisition six years ago. Information for these two questions is provided the last two sections of the chart shown below, and may require some research.

35. DRT provides a full six-month warranty for all go-karts sold. Using statistical estimates that have proven fairly reliable in the past, DRT estimates that the warranty expense related to current-year sales is $580,000. As of December 31st of the current year, DRT had incurred $470,000 of actual expenses (parts and labor) related to current-year sales; the remaining warranty work for current-year sales is expected to occur uniformly over the first six months of the next year. DRT accrued the $580,000 as the current-year warranty expense on their financial accounting records.

36. For the first time, during the current year DRT offered a $75 rebate to retail customers on sales of their top-of-the-line go-kart. The rebate offer covers purchases up to the end of the current year, and customers must submit the rebate form with proof of purchase no later than January 31 of next year. Rebates will be mailed to customers in March of next year. DRT has received requests for $340,000 in rebates by the end of the current year, and their sales records indicate that total rebate coupons outstanding (and not received) at the end of the current year total an additional $100,000. DRT plans to continue to offer the rebate program each fall in the future.