Harold is a 90% owner of National Homes Construction, an accrual basis S corporation. On December 30, 2017, National Homes accrues a $100,000 bonus to Harold, payable on February 15, 2018.
I.If Harold is an accrual basis taxpayer, National Homes deducts the bonus in 2017 and Harold reports the income in 2018.
II.If Harold is a cash basis taxpayer, National Homes deducts the bonus in 2017 and Harold reports the income in 2018.

Question

Harold is a 90% owner of National Homes Construction, an accrual basis S corporation. On December 30, 2017, National Homes accrues a $100,000 bonus to Harold, payable on February 15, 2018.
I.If Harold is an accrual basis taxpayer, National Homes deducts the bonus in 2017 and Harold reports the income in 2018.
II.If Harold is a cash basis taxpayer, National Homes deducts the bonus in 2017 and Harold reports the income in 2018.
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Quizplus · Accepted Answer

Neither statement is correct. If Harold is an accrual basis taxpayer, National Homes deducts the bonus in 2018 when it is paid. If Harold is a cash basis taxpayer, National Homes cannot deduct the bonus until it is paid in 2018 and Harold reports the income in that same year.

Harold Is a 90% Owner of National Homes Construction, an Accrual