Question

Ruby Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Cole owns 55% of the stock, and Martin owns the remaining 45%. During 2016, Ruby paid a salary of $200,000 to each shareholder. On December 31, 2016, Ruby accrued a bonus of $50,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2017, compute Ruby Corporation's 2016 deduction for the above amounts.$450,000$400,000$250,000$500,000

Answer 1

Answer:

Explanation:

Answer:

$200000 + $200000 +$50000(to COLE's bonus)

= $450000

Ruby corporation uses accrual method.

A corporation that is using accrual method, cannot claim a deduction for an accrual with respect to a related party until the recipient reports that amount as income.

Here, Cole owns more than 50% (55%) so its a related party and it will report bonus on february 1,2017

Therefore, Ruby can not deduct bonus payable to oliver in 2016

Hence total deductible in 2017 would be $450000.