Gerald, a Cash Basis Taxpayer, Owns 70% of the Stock

question 79

Essay

Gerald, a cash basis taxpayer, owns 70% of the stock of Black Corporation, a calendar year, accrual basis C corporation. On December 31, 2016, Black accrued a bonus of $80,000 to Gerald, and paid the bonus to Gerald on January 6, 2017. When does Gerald report the bonus, and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

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Definitions:

Return On Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the net profit from an investment by the original capital cost.

Invested Assets

Assets acquired for the purpose of generating income through investment, rather than for use in the operations of a business.

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated, indicating the efficiency of a company in converting sales into profits.

Return On Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefits of an investment by its costs.