During 2017, the First Year of Operations, Silver, Inc

question 88

Multiple Choice

During 2017, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2018. What is the amount of the deduction for salary expense?

• A) If Silver uses the cash method, $175,000 in 2017 and $0 in 2018.
• B) If Silver uses the cash method, $0 in 2017 and $195,000 in 2018.
• C) If Silver uses the accrual method, $175,000 in 2017 and $20,000 in 2018.
• D) If Silver uses the accrual method, $195,000 in 2017 and $0 in 2018.
• E) None of the above is correct.

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Definitions:

Boot

Additional value or cash added to a transaction to even out an exchange or transfer of assets.

Fixed Asset

A fixed asset is a long-term tangible piece of property or equipment that a company owns and uses in its operations to generate income, not easily converted into cash.

Intangible

An intangible asset is an asset that lacks physical substance, such as intellectual property, goodwill, and licensing agreements.

Amortization

The process of spreading the cost of an intangible asset over its useful life, recognizing a portion of the expense each accounting period.