Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2012, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
Definitions:
Accounts Receivable Turnover
Accounts receivable turnover is a financial ratio that measures how many times a company can turn its accounts receivable into cash during a period.
Adjusting Entry
An accounting process used to allocate expenses and revenues between periods according to their occurrence and realization, ensuring that financial statements accurately reflect the financial position of a company at the end of an accounting period.
Financial Statements
Formal records of the financial activities and position of a business, person, or other entity, typically including the balance sheet, income statement, and cash flow statement.
Interest Note
A promissory note that includes terms for interest payments in addition to the principal amount loaned.
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