Question

North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes.

• $9,300 for Lisa Tanaka, a 25 percent shareholder.
• $11,100 for Jared Zabaski, a 30 percent shareholder.
• $15,200 for Helen Talanian, a 25 percent shareholder.
• $8,750 for Steve Nielson, a 0 percent shareholder.

Unless stated otherwise, assume these shareholders are unrelated.

How much of the accrued bonuses can North Inc. deduct in year 1 under the following alternative scenarios? (Leave no answer blank. Enter zero if applicable. Input all amounts as positive values.)

Problem 12-23 Part c (Algo)

c. North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other’s stock in North.

Deductible accrued bonuses Year 1 = ________

Answer 1

Answer:

c.)

North may deduct $23,950 in year 1 and and $20,400 in year 2. Helen and Steve’s bonuses are deductible in year 1 because they were paid within 2 ½ months of year end.Lisa and Jared’s bonuses are deductible in year 2 which is the year they take the bonuses into income—since they are related parties (own greater than 50 percent).

Employee	Deductible Year 1	Deductible Year 2
Lisa Tanaka		$9,300
Jared Zabaski		$11,100
Helen Talanian	$15,200
Steve Nielson	$8,750
	$23,950	$20,400

.

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Really hope this helps! Thankyou.

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