Gerald,a Cash Basis Taxpayer,owns 70% of the Stock of Black

question 48

Essay

Gerald,a cash basis taxpayer,owns 70% of the stock of Black Corporation,a calendar year,accrual basis C corporation.On December 31,2017,Black accrued a bonus of $80,000 to Gerald,and paid the bonus to Gerald on January 5,2018.When does Gerald report the bonus,and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

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Definitions:

Bond Premium

The excess of a bond's market price over its nominal value.

Market Rate

The prevailing interest rate available in the marketplace for loans or investments of similar risk and maturity.

Contractual Rate

The interest rate stated in a contract, such as in a loan agreement or bond indenture, determining the amount of interest payments.

Premium on Bonds Payable

The amount by which the sale price of a bond exceeds its face value, reflecting higher-than-market interest rates or increased demand for the bond.