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 2017,Ivory paid a salary of $100,000 to each shareholder.On December 31,2017,Ivory accrued a bonus of $25,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 2,2018,compute Ivory Corporation's 2017 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

Under the accrual method, expenses are deductible in the year incurred, even if payment is not made until a later year. Therefore, Ivory Corporation can deduct the salaries and accrued bonuses in the 2017 tax year.

The deduction for each shareholder's salary is $100,000, which adds up to a total of $200,000.

The deduction for each shareholder's accrued bonus is $25,000, which also adds up to a total of $50,000.

So, the total deduction for Ivory Corporation in 2017 is $200,000 + $50,000 = $250,000. However, the question asks for the deduction for the above amounts, which would only be the total deduction for the salaries and bonuses, not including any other expenses. Therefore, the correct answer is B) $225,000.

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