Bell, Inc., an accrual basis taxpayer, makes and sells personal computing equipment. It includes basic one-year warranty service with most of its products and, for financial reporting purposes, recognizes an estimate of the expenses related to honoring those warranties when the products are sold. Bell reports the following in its financial statements for the year.

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Income Statement Warranty expense $500,000 Balance Sheet Allowance for existing warranty contracts 1/1 Allowance for existing warranty contracts 12/31 How much warranty expense may Bell deduct for the year? 30,000 40,000