Question Completion:
a) Jorgensen paid the bonuses to the employees on March 1 of year 2.
b) Jorgensen paid the bonuses to the employees on April 1 of year 2.
c) Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remain employed with Jorgensen on the payment date to receive the bonus.
d) Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remain employed with Jorgensen on the payment date to receive the bonus; if not, the forfeited bonus is reallocated to the other employees.
Answer:
Jorgensen High Tech Inc.
a) Jorgensen paid the bonuses to the employees on March 1 of year 2.
In year 1, Jorgensen can deduct $147,000 of the bonuses.
b) Jorgensen paid the bonuses to the employees on April 1 of year 2.
In year 1, Jorgensen cannot deduct any bonuses since they were not paid within the two and one-half months rule.
c) Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remain employed with Jorgensen on the payment date to receive the bonus.
Jorgensen can still deduct the $147,000 for bonuses in Year 1. No employee had left so far.
d) Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remain employed with Jorgensen on the payment date to receive the bonus; if not, the forfeited bonus is reallocated to the other employees.
Jorgensen can still deduct the $147,000 for bonuses in Year 1. All the employees concerned have remain employed with Jorgensen till March 1.
Explanation:
a) Data and Calculations:
Accrued Bonuses:
Ken $58,800
Jayne $44,100
Jill $29,400
Justin $14,700
Total $147,000
b) Jorgensen, as a qualified calendar-year company, has until March 15 of year 2 to pay all year 1 bonuses in order to deduct the bonus expense in year 1. However, if Ken, Jayne, Jill, and Justin had reported the accrued bonuses in their income tax forms, the 2 and 1/2 months rule will not apply. This means that Jorgensen could still accrue the bonuses longer than 2 and 1/2 months before paying them to the employees.
