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:

Standard Costs

Predetermined or budgeted costs serving as benchmarks for measuring performance, commonly used for budgeting and variance analysis.

Actual Costs

The real costs incurred in the production of goods or in the provision of services.

Direct Labor Variance

The discrepancy between the expected (budgeted) cost of direct labor and the actual cost incurred during a production period.

Direct Labor Time Variance

The difference between the estimated time to produce a good and the actual time taken, often used in cost accounting.