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Mike, a medical doctor, contracted with Kram Company, Mike’s controlled corporation. The contract provided that Mike...

Mike, a medical doctor, contracted with Kram Company, Mike’s controlled corporation. The contract provided that Mike would work exclusively for the corporation. No other doctor worked for the corporation. The corporation contracted to perform an operation for Rosa for $8,000. The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

a. Mike’s gross income is $6,500.

b. Mike must recognize the $8,000 gross income because he provided the service.

c. Mike must recognize $8,000 gross income since the patient obviously wanted him to perform the operation.

d. The Kram Company corporation’s gross income is $1,500.

e. None of these.

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Answer #1

A. Mike's gross income is $6500 which is as per the employment terms. The remaining amount of $1500 is revenue to the corporation which will be flow to Mike later with board approval.

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