Reference no: EM132522320

Question - Answer and explain the question.

Q1. During 2019, Lamont hired a contractor to remodel his store. The remodeling was completed on November 28. On December 13, Lamont received a $20,000 bill from the contractor. He immediately contacted the contractor to contest the $7,000 labor charge included in the bill, which Lamont claims should only be $5,000. Lamont did not pay any amount to the contractor. Lamont uses the accrual method of accounting for his calendar-year computer sales and repair business. For tax purposes, (a) how should Lamont account for the following transactions; and (b) would your answers change if Lamont were a cash basis taxpayer?

Q2. Lamont provides a one-year warranty on all of its computers. For computer sales during 2019, he paid $12,500 to service warranties during 2019, and he expects to pay $14,000 to fulfill the remaining 2019 warranty obligations in 2020. Lamont uses the accrual method of accounting for his calendar-year computer sales and repair business. For tax purposes, (a) how should Lamont account for the following transactions; and (b) would your answers change if Lamont were a cash basis taxpayer?