Question

Question 1 part A and B

A. Jenson Company, an accrual basis taxpayer, paid salaries of $125,000 in 2017 and had a salary payable of $20,000 at the end of 2017. The salary of $20,000 owed to employees at the end of 2017 was paid in 2018. What should be the amount of the deduction for salary expense in 2017 and 2018?

Group of answer choices

$145,000 in 2017 and $0 in 2018

$125,000 in 2017 and $0 in 2018

$125,000 in 2017 and $20,000 in 2018

$20,000 in 2017 and $0 in 2018

B. Mac Corporation, a computer maker, donated computers to a qualified educational institution. The computers were manufactured by Mac and the educational institution will use the computers for research and research training. Mac’s basis in the computers is $40,000, and the fair market value is $75,000. What is the amount of Mac’s tax deduction for the computers? Ignore the taxable income limitation.

Group of answer choices

$40,000

$57,500

$75,000

$80,000

Answer 1

A. In accrual basis, the income and expenses of the time period during which they were incurred is accounted for, ignoring the receipt or payment of the amount. This is known as accrual basis. Therefore, according to the question given:

Since, 2017 had total salaries amounting to $145000 out of which $20000 was paid in 2018. Though $20000 was paid in 2018 but as per the accrual basis, the entire amount will be accounted in 2017 which is $145000.

And for 2018, the salary amount will be $0 since it was only paid in 2018 but the services of that amount were already taken in 2017.

B. According to the question, since MAc donated the computers, it is eligible for tax deduction, now the deduction will be limited to the cost of the computer i.e., $40000 since that is the amount expended by Mac on the production of the computers. Therefore, the amount to be deducted will be cost i.e., $40000