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1) The National Electrical Code recommends that the voltage drop be 3% or less.
2) The maximum distance for a 12 AWG copper conductor @ 20 amps/120 volts is 47 feet which results in exactly a 3% VD or a loss of 3.6 volts. Therefore, code compliant.
3) The maximum distance for a 10 AWG Copper conductor @ 20 amps/120 volts is 75 feet which results in exactly a 3% VD or a loss of 3.6 volts. Therefore, code compliant.
4) Since your distance will be 85 feet, you will need 8 AWG copper conductors for the 20 amp/120 volt circuit. This results in a 3% VD or a loss of 3.6 volts.
5) 8 AWG copper is correct. The difference is due to the distance and the voltage drop over the conductors on an 85 foot run. All conductors are rated in ohm's per foot. The longer the run, the larger the conductor size needs to be in order to account for the voltage drop.
6) A 120 volt circuit will require 1 hot, 1 neutral and 1 equipment grounding conductor to the outbuilding. Therefore, a 3 wire circuit must be installed. The receptacles at the outbuilding will also be required to be GFCI protected. I assume that all you require is (1) one 120 volt dedicated circuit?