In 2019, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan.Jindal's deductible amount and any contribution carryover are as follows:
A)$0 deductible; $12,800 carryover.
B)$8,460 deductible; $4,340 carryover.
C)$10,575 deductible; $2,225 carryover.
D)$12,690 deductible; $110 carryover.
E)None of these.

Question

Quizplus · Accepted Answer

The deductible amount for a profit sharing plan is limited to 25% of the compensation paid to plan participants. In this case, 25% of $42,300 is $10,575, which is the maximum deductible amount. 
The contribution carryover is the excess contribution made in a year over the deductible amount, which can be carried forward to be deducted in future years. In this case, the contribution made by Jindal Corporation ($12,800) exceeds the maximum deductible amount ($10,575) by $2,225. Therefore, the contribution carryover is $2,225. 
So, the best choice is C: $10,575 deductible; $2,225 carryover.

In 2019, Jindal Corporation Paid Compensation of $42,300 to the Participants