Barry and Larry, Who Are Brothers, Are Equal Owners in Chickadee

question 35

Multiple Choice

Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2018, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2019, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2018?

• A) $0
• B) $10,000
• C) $16,000
• D) $125,000
• E) None of the above

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