In 2016,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 the above.

Question

Quizplus · Accepted Answer

To calculate the deductible amount, we need to add the current year contribution ($12,800) to the prior year carryover (which is $0 for the first year), and then subtract the total plan compensation from this amount.

Deductible amount = ($12,800 + $0) - $42,300 = -$29,500

Since a negative deductible amount is not allowed, we need to limit it to $0. Therefore, the deductible amount for 2016 is $0. The remaining amount of $12,800 will be carried over to the following year.

Therefore, choice C is correct, with a deductible amount of $10,575 and a carryover of $2,225.

In 2016,Jindal Corporation Paid Compensation of $42,300 to the Participants