Question

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 2019, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2019, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2020, compute Ivory Corporation's 2019 deduction for the above amounts.

Answer 1

Answer:

$225,000

Explanation:

Computation for Ivory Corporation's 2019 deduction for the above amounts.

In a situation where a Corporation uses the accrual method such Corporation cannot in any way claim a deduction for an accrual with respect to a related party reason been that the recipient have to reports the amount as income.

Therefore Ivory Corporation cannot deduct the $25,000 bonus which was attributable to Oscar because Oscar is the related party until the year 2018.

Ivory Corporation should go ahead and deduct in 2017 the salary payments which is been made to each shareholder plus the accrued bonus to Craig, or $225,000

Salary of $100,000 + Salary of $100,000 + $25,000 bonus

$225,000