Ron and Tom are equal owners in Robin Corporation. On July 1, 2012, each loans the corporation $20,000 at annual interest of 10%. Ron and Tom are brothers. Both shareholders are on the cash method of accounting, while Robin Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2013, Robin repays the loans of $40,000 together with the specified interest of $4,000. How much of the interest can Robin Corporation deduct in 2012?
A)$0.
B)$1,000.
C)$2,000.
D)$4,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Robin Corporation is on the accrual method, so it can deduct the interest expense as it accrues. The interest accrues evenly over the year, so Robin Corporation can deduct $2,000 of interest expense in 2012.

Ron and Tom Are Equal Owners in Robin Corporation