Wilma Is CEO of and Owns 100 Percent of WT

question 52

Multiple Choice

Wilma is CEO of and owns 100 percent of WT Enterprises, a cash-basis, calendar-year corporation.The company has always been profitable but over the last five years Wilma's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends.Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

• A)Wilma will pay an additional tax on the $500,000 recharacterized as dividend.
• B)Wilma will be eligible for a refund of Medicare taxes.
• C)WT will lose a deduction for the $500,000 recharacterized as a dividend.
• D)WT will be eligible for a refund of a portion of FICA taxes it paid.

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Definitions:

Work In Process Inventory

Inventory that consists of items in the production process but not yet completed, considered a current asset on the balance sheet.

Process Cost Summary

A report detailing the costs associated with each stage of the production process, summarizing the total expense of converting raw materials into finished products.

Reporting Period

The specific time frame covered by financial statements or reports, typically a quarter or a year.

Work In Process Inventory

Goods that are in the production process but have not yet been completed.