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 2014, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2014, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 3, 2015, compute Ivory Corporation's 2014 deduction for the above amounts.
A) $250,000
B) $225,000
C) $200,000
D) $125,000
E) None of the above

Question

Quizplus · Accepted Answer

Since Craig and Oscar are both cash method taxpayers, their salary payments are deductible for 2014 in the amount of $200,000. Since the bonus payments were accrued at year-end and paid within 2 1/2 months after year-end, Ivory Corporation can deduct the bonus payments in 2014, even though they were not paid until 2015. Thus, Ivory Corporation's total deduction for 2014 is $225,000 ($100,000 + $100,000 + $25,000 + $25,000).

Ivory Corporation, a Calendar Year, Accrual Method C Corporation, Has