In 2022, Taxpayer (TP) realizes and recognizes $100,000 in sales of inventory. Although TP normally realizes and recognizes 1% of sales as warranty expense (TPs inventory has warranty of 2 yrs from date of sale), TP paid nothing for warranty expense in 2022. TPs accounting records are maintained on the cash basis. TP files a Schedule C, Form 1040, on the cash basis for 2022.

QUESTION: What accounting journal entry does TP enter in its accounting journal for 2022, and how much is the tax deduction that TP is allowed on Form 1040 for 2022. A. TP does not recognize an accounting journal entry for 2022; and TP does not recognize a tax deduction for 2022. B. TP does not realize an accounting journal entry for 2022; and TP does not realize a tax deduction for 2022. C. In TPs accounting records, TP debits Warranty Expense $1,000, credits Warranty Payable $1,000 for 2022; and TP recognizes a tax deduction of $1,000. D. In TPs accounting records, TP debits Warranty Expense $1,000, credits Warranty Payable $1,000 for 2022; and TP recognizes no tax deduction. E. None of the other choices are correct.