Question

Jorgensen High Tech Inc. is a calendar-year, accrual-method taxpayer. At the end of year 1, Jorgensen accrued and deducted the following bonuses for certain employees for financial accounting purposes.

•	$51,600 for Ken.
•	$38,700 for Jayne.
•	$25,800 for Jill.
•	$12,900 for Justin.

How much of the accrued bonuses can Jorgensen deduct in year 1 under the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)

Jorgensen paid the bonuses to the employees on March 1 of year 2

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

Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remains employed with Jorgensen on the payment date to receive the bonus.

Jorgensen paid the bonuses to employees on March 1 of year 2, and there is a requirement that the employee remains employed with Jorgensen on the payment date to receive the bonus; if not, the forfeited bonus is reallocated to the other employees.

Answer 1

Calculation of deductible amount of bonus Emplovee Name Deductible in Year Deductible in Year 2 Mr. Ken Mr. J Mr. Jill Mr. Justin Total Deductible S 51.600.00 38,700.00 25,800.00 12,900.00 129.000.00 Thus Jorgensen High may deduct S 129,000 in Year 1 because the bonus were paid in 2 months (with in 2 and half months) of year end. Calculation of deductible amount of bonus Emplovee Name Deductible in Year Deductible in Year 2 Mr. Ken Mr. Ja Mr. Jil Mr. Justin Total Deductible 51,600.00 38,700.00 25,800.00 12,900.00 129,000.00 Hence Jorgensen High may not deduct any amount in Year 1 because the were not paid in with in 2 and half months of year end. He may deduct S129,000 of bonus in Year 2 Calculation of deductible amount of bonus Emplovee Name Deductible in Year Deductible in Year 2 Mr. Ken Mr. J Mr. Jil Mr. Justin Total Deductible 51,600.00 38,700.00 25,800.00 12,900.00 129,000.00 The employee are eligible to receive bonus only then, when they are employed on the payment date of bonus. Hence, the bonus amounts are not considered as fixed. As per section the bonus were not fixed at the end of year 1. Hence, Jorgensen High may deduct $129,000 in year 2 d) As per section, if an employee leaves before the payment of bonus, the forfeited amount is reallocated to the other eligible employees Thus amount of bonus paid by Jorgensen High is considered as fixed, even if any specific employee leaves on the payment date Therefore, the amount of bonus of S129,000 may be deductible in Year 1, as it is fixed and paid with in 2 and half month of year end.