Please answer the following A-G: (answer should include deductible amount and a brief description why (i.e. what rule are you following in arriving at your conclusion))

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 (972 months following the close of the tax year). In late December, repre- sentatives 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 Proposed Deduction by DRT Questionable Item A On November 1 of the current year, DRT paid rent for 20 months in advance for a utility warehouse (a total of $96,000). In addition, DRT paid a $5,000 damage on the property, refundable at the end of the lease if no damage exists. Assume that the amount is material. $53,000 B In relaying the information on the rental agreement in (1) above, a Vice President at DRT asks if the result would be different if DRT used the cash method of accounting. DRT is considering the acquisition of a services provider that uses the cash method, and they are curious as to how certain items would be handled under a system. Answer for the cash method, based on the facts in (1). $53,000 $260,000 C Auditors from the State Tax Commission recently informed DRT that a solvent furnished with their products sold was subject to a special fuel tax under state law. The tax computed on current-year sales is $260,000. DRT paid the $ 260,000 to the tax Commission on December 15 under protest, and file the necessary paperwork to contest the tax. The case is to be heard in April of next year. Attorneys for DRT estimate their chances of winning at approximately 40 percent. D 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. $580,000 Proposed Deduction by DRT $440,000 Questionable Item E 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. F. On December 22, DRT purchased $30,000 of postage from the U.S. Postal Service. DRT expects to use the entire amount by March 1 of next year. G During the spring of the current year, DRT leased 100 acres of land to construct a sunken racetrack for purposes of demonstrating their products to potential buyers. The lease agreement required DRT to reclaim the land when the lease expired in November, returning the land to its original condition. DRT estimates that this work will cost $560,000. As of the end of the current year, DRT had spent $130,000 on the reclamation project. $30,000 $560,000 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 (972 months following the close of the tax year). In late December, repre- sentatives 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 Proposed Deduction by DRT Questionable Item A On November 1 of the current year, DRT paid rent for 20 months in advance for a utility warehouse (a total of $96,000). In addition, DRT paid a $5,000 damage on the property, refundable at the end of the lease if no damage exists. Assume that the amount is material. $53,000 B In relaying the information on the rental agreement in (1) above, a Vice President at DRT asks if the result would be different if DRT used the cash method of accounting. DRT is considering the acquisition of a services provider that uses the cash method, and they are curious as to how certain items would be handled under a system. Answer for the cash method, based on the facts in (1). $53,000 $260,000 C Auditors from the State Tax Commission recently informed DRT that a solvent furnished with their products sold was subject to a special fuel tax under state law. The tax computed on current-year sales is $260,000. DRT paid the $ 260,000 to the tax Commission on December 15 under protest, and file the necessary paperwork to contest the tax. The case is to be heard in April of next year. Attorneys for DRT estimate their chances of winning at approximately 40 percent. D 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. $580,000 Proposed Deduction by DRT $440,000 Questionable Item E 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. F. On December 22, DRT purchased $30,000 of postage from the U.S. Postal Service. DRT expects to use the entire amount by March 1 of next year. G During the spring of the current year, DRT leased 100 acres of land to construct a sunken racetrack for purposes of demonstrating their products to potential buyers. The lease agreement required DRT to reclaim the land when the lease expired in November, returning the land to its original condition. DRT estimates that this work will cost $560,000. As of the end of the current year, DRT had spent $130,000 on the reclamation project. $30,000 $560,000