During 2017, the First Year of Operations, Silver, Inc

question 88

Multiple Choice

During 2017, 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 2018. What is the amount of the deduction for salary expense?

• A) If Silver uses the cash method, $175,000 in 2017 and $0 in 2018.
• B) If Silver uses the cash method, $0 in 2017 and $195,000 in 2018.
• C) If Silver uses the accrual method, $175,000 in 2017 and $20,000 in 2018.
• D) If Silver uses the accrual method, $195,000 in 2017 and $0 in 2018.
• E) None of the above is correct.

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Definitions:

Performance

The execution or accomplishment of work, acts, or tasks as required by a contract or expectation.

Agreement

A mutual understanding or arrangement, often formalized in a contract, between two or more parties to perform or refrain from performing particular acts.

Reasonable Value

The fair or market value of a service or item, considered to be value as determined by what a willing buyer would pay to a willing seller in an arms-length transaction.

Workmanlike Manner

The expectation that services or work performed will meet the standards set by skilled individuals in that trade or industry.