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Financial statement information for the current fiscal

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Reference no: EM131799004

xxx company (an accrual basis taxpayer with a fiscal and tax year of July 1st-June 30th) sells electronics and small appliance. For GAAP purposes, the company provides an allowance equal to 1% of its gross sales each year to account for the warranties related to those sales. Selected financial statement information for the current fiscal (and tax) year that ended on June 30th is as follow:

Comparative Balance Sheet:

                       Allowance for Warranties (June 30th of last year)                          $325000

                       Allowance for Warranties (June 30th of this year)                          $275000

Income Statement:

                       Gross Sales                                                                                $40000000

How much may xxx company deduct for warranty expense for the current tax year and why?

Reference no: EM131799004

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