During 2018, the First Year of Operations, Silver, Inc

question 21

Multiple Choice

During 2018, 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 2019.What is the amount of the deduction for salary expense?

• A)If Silver uses the cash method, $175,000 in 2018 and $0 in 2019.
• B)If Silver uses the cash method, $0 in 2018 and $195,000 in 2019.
• C)If Silver uses the accrual method, $175,000 in 2018 and $20,000 in 2019.
• D)If Silver uses the accrual method, $195,000 in 2018 and $0 in 2019.
• E)None of these is correct.

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Definitions:

Cyclical Nature

Describes a pattern that repeats in cycles, often used in economics to describe the fluctuations in the economy over periods of expansions and recessions.

Seasonal

Pertaining to or occurring during a particular season of the year, often implying changes in business activities, market demand, or weather patterns that recur annually.

Working Capital Management

The practice of managing a company's short-term assets and liabilities to ensure it has sufficient liquidity to run its operations efficiently.

Cost/Benefit Tradeoffs

The analysis or decision-making process regarding the advantages and disadvantages (costs and benefits) of a given action or investment.