Question

Troy, a cash basis taxpayer, is employed by Eagle Corporation, also a cash basis taxpayer. Troy is a full-time employee of the corporation and receives a salary of $60,000 per year. He also receives a bonus equal to iO% of all collections from clients he serviced during the year. Determine the tax consequences of the following events to the corporation and to Troy
A.On December 31, 2018, Troy was visiting a customer. The customer gave Troy a $10,000 check payable to the corporation for appraisal services Troy performed during 2018. Troy did not deliver the check to the corporation until January
B. Gross Incom ne facts are the same as in part (a), except that the corporation is an accrual basis taxpayer and Troy deposited the check on December 31, but the hank did not add the deposit to the corporation's account until January 2019
C. The facts are the same as in part (a), except that the customer told Troy to hold the check until January 2019 when the customer could make a bank deposit that would cover the check

Answer 1

Answer and Explanation:

The tax consequences for the following events -

a. The organization should record the amount of $10,000 in the year 2018 as they followed the cash basis and the cheque should be equal to the cash also troy could not able to record the bonus till it is actually collected

b. As per the accrual basis, the income should be recorded when they are earned not when they are received so the corporation should record the income in the year 2018 as the agent performed the service

c. Since the restrictions that are imposed on cheque for payment purpose should be treated as the substantial and the cheque should not be equivalent to the cash because the customer told that check should be held till Jan 2019 so the income should not be recorded in 2018