In 2012, Godfrey Received a $50,000 Sales Commission on a Long-Term

question 63

Multiple Choice

In 2012, Godfrey received a $50,000 sales commission on a long-term contract. But in 2013, the customer filed bankruptcy and Godfrey's employer was not able to collect from the customer. Under the bonus agreement, Godfrey was required to repay the employer $20,000 of the bonus. Godfrey was in the 35% marginal tax bracket in 2012 but he is in the 25% marginal tax bracket in 2013.

• A)Godfrey can amend his 2012 tax return and reduce his taxable income by $20,000.
• B)Godfrey should deduct the $20,000 paid in 2013 and thus his tax savings will be $5,000.
• C)Godfrey can reduce his 2013 tax liability by 35% ´ $20,000 = $7,000.
• D)Godfrey should not have reported the income in 2012 because of the contingencies.
• E)None of the above.

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Definitions:

Average Rate Of Return

The mean annual growth rate of an investment over a specified period of time, expressed as a percentage.

Excess Funds

Resources or capital that exceed the immediate operational or investment needs of an entity.

Rate Of Interest

The slice of a loan attracting interest fees for the borrower, typically outlined as an annual percentage of the still owing loan amount.

One-tailed Hypothesis

A statistical hypothesis test where the region of rejection is on only one side of the sampling distribution.