Discuss allows customers to return defective merchandise

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Gray Company, a calendar year taxpayer, allows customers to return defective merchandise for a full refund within 30 days of the purchase. In 2016, the company refunded $400,000 for claims involving sales. The $400,000 consisted of $350,000 in refunds from 2016 sales and $50,000 in refunds from 2015 sales. All of the refunds from 2015 sales were for claims filed in 2015 and were paid in January and February 2016. At the end of 2016, the company had $12,000 in refund claims for sales in 2016 for which payment had been approved. These claims were paid in January 2016. Also in January 2016, the company received an additional $30,000 in claims for sales in 2016. This $30,000 was paid by Gray in February 2017. With respect to the above, Gray can deduct:

a. $350,000 in 2016.

b. $362,000 in 2016.

c. $392,000 in 2015.

d. $442,000 in 2016.

e. None of the above.

Reference no: EM131768741

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