During 2013, the First Year of Operations, Silver, Inc

question 134

Multiple Choice

During 2013, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2014. What is the amount of the deduction for salary expense?

• A) If Silver uses the cash method, $175,000 in 2013 and $0 in 2014.
• B) If Silver uses the cash method, $0 in 2013 and $195,000 in 2014.
• C) If Silver uses the accrual method, $175,000 in 2013 and $20,000 in 2014.
• D) If Silver uses the accrual method, $195,000 in 2013 and $0 in 2014.
• E) None of the above is correct.

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Definitions:

Significant Influence

The capability to engage in the decision-making processes regarding the financial and operational policies of an investee, but without exercising control or shared control over such policies.

Equity in Income

Earnings attributed to a company's investment in other companies, reflecting the share of profits from the investments.

Net Income

The final profit amount for a company, which comes after deducting all expenditures and taxes from the gross revenue.

Dividends

Financial rewards paid out to shareholders, mainly coming from the corporation's net income.