Barry and Larry, Who Are Brothers, Are Equal Owners in Chickadee

question 47

Multiple Choice

Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2014, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2015, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2014?

• A) $0.
• B) $500.
• C) $1,000.
• D) $2,000.
• E) None of the above.

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Definitions:

Broker

An individual or firm that acts as an intermediary between buyers and sellers, typically in financial transactions, real estate, or insurance.

Assumes a Risk

A legal doctrine where an individual knowingly exposes themselves to a hazard or danger and is considered to have consented to the risk involved.

Insurer

A company or entity that provides insurance policies to protect individuals or organizations against financial loss or damage.

Premium

A sum paid periodically to the insurer by the insured for covering their risk.