Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2014,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2015,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2014?
A)$0
B)$500
C)$1,000
D)$2,000
E)None of these

Question

Quizplus · Accepted Answer

Chickadee Corporation can deduct interest expense of $2,000 in 2015 and $0 in 2014.Under § 267,Barry and Larry are regarded as related to the corporation.Consequently,the deductibility must await actual payment (in 2015).

Barry and Larry,who Are Brothers,are Equal Owners in Chickadee Corporation