Question

[Q1-3]

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.

• $9,950 for Lisa Tanaka, a 20 percent shareholder.
• $12,400 for Jared Zabaski, a 40 percent shareholder.
• $19,000 for Helen Talanian, a 30 percent shareholder.
• $9,900 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.)

a. North paid the bonuses to the employees on March 1 of year 2.

b. North paid the bonuses to the employees on April 1 of year 2.

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.

A.	Deductible accrued bonuses Year 1	???
B.	Deductible accrued bonuses Year 1	0
C.	Deductible accrued bonuses Year 1	???

Answer 1

Answer

(Q1-3)	(Q1-3) North may deduct $53,750 in year 1 because they were paid within 21/2 months of year end.
	Employee	Deductible Year 1	Deductible Year 2
	Lisa Tanaka	$           9,950	0
	Jared Zabaski	$         12,400	0
	Helen Talanian	$         19,000	0
	Steve Nielson	$           9,900	0
		$         51,250	0
A. North paid the bonuses to the employees on March 1 of year 2.
	So, north inc can deduct Full $ 51250 ( total amount accured)