Alfred's Enterprises, an Unincorporated Entity, Pays Employee Salaries of $100,000

question 51

Essay

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year.At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year.
a.Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer.
b.Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

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Definitions:

Straight-Line Method

A method of depreciation that allocates an equal expense amount to each year of the asset's useful life.

Effective-Interest Method

A way of calculating the amortized cost of a bond and the amount of interest expense over time.

Interest Payment Dates

Specific dates set in a loan agreement or bond indenture on which interest payments are made to lenders or bondholders.

Operating Lease

A leasing agreement allowing the use of an asset without ownership, typically with shorter terms than the asset's life, and where the lessor retains the risks and benefits of ownership.