Ivory Corporation,a calendar year,accrual method C corporation,has two cash method,calendar year shareholders who are unrelated to each other.Craig owns 35% of the stock,and Oscar owns the remaining 65%.During 2015,Ivory paid a salary of $100,000 to each shareholder.On December 31,2015,Ivory accrued a bonus of $25,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 3,2016,compute Ivory Corporation's 2015 deduction for the above amounts.
A)$250,000
B)$225,000
C)$200,000
D)$125,000
E)None of above

Question

Quizplus · Accepted Answer

Ivory Corporation can deduct the $100,000 salary paid to each shareholder in 2015. However, since the bonuses were not paid until 2016, they cannot be deducted in 2015 under the accrual method because the shareholders are related parties. Therefore, the deduction for 2015 is $200,000 for salaries plus $25,000 for the bonus to Oscar, who owns more than 50% of the stock, totaling $225,000.

Ivory Corporation,a Calendar Year,accrual Method C Corporation,has Two Cash Method,calendar