Barry and Larry,who Are Brothers,are Equal Owners in Chickadee Corporation

question 55

Multiple Choice

Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2015,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2016,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2015?

• A)$0
• B)$500
• C)$1,000
• D)$2,000
• E)None of the above

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Definitions:

Indefinite Term

A contract or agreement duration that lacks a specific end date, often continuing until one party gives notice of termination.

Sale-and-Lease-Back

A financial transaction where one sells an asset and immediately leases it back from the buyer, maintaining its use while freeing up capital.

Deductible Expense

An expense that can be subtracted from taxable income, reducing the total amount on which tax is assessed.

Lease Expiry

The date on which a lease agreement comes to an end.