Maureen is a cash-basis, calendar-year taxpayer and works as a sales manager for Teton Corporation, an accrual basis, calendar-year corporation. Teton's president and 100 percent owner, Tom, (also a cash-basis taxpayer) authorizes a $25,000 bonus for Maureen and a $100,000 bonus for himself on December 22, year 1. The company pays his bonus on February 2, but fails to pay Maureen's bonus until March 30, year 2.
a. How much income do Maureen and Tom recognize in years 1 and 2?
b. What is Teton's compensation deduction for the bonus in years 1 and 2?
c. What is Teton's compensation deduction for the bonus for each year if, instead, both bonuses were paid on February 2 of year 2?

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The Answer of Maureen is a cash-basis, calendar-year taxpayer and works as a sales manager for Teton Corporation, an accrual basis, calendar-year corporation. Teton's president and 100 percent owner, Tom, (also a cash-basis taxpayer) authorizes a $25,000 bonus for Maureen and a $100,000 bonus for himself on December 22, year 1. The company pays his bonus on February 2, but fails to pay Maureen's bonus until March 30, year 2.
a. How much income do Maureen and Tom recognize in years 1 and 2?
b. What is Teton's compensation deduction for the bonus in years 1 and 2?
c. What is Teton's compensation deduction for the bonus for each year if, instead, both bonuses were paid on February 2 of year 2?

Maureen Is a Cash-Basis, Calendar-Year Taxpayer and Works as a Sales