Rodney, the Sole Shareholder of Orange Corporation, an Accrual Method

question 71

Multiple Choice

Rodney, the sole shareholder of Orange Corporation, an accrual method, calendar year corporation, loaned the corporation a substantial amount of money on January 1, 2018. Orange Corporation accrued $45,000 of interest expense on the loan on December 31, 2018. Orange pays the interest to Rodney, a cash basis taxpayer, on January 1, 2019. Based on these facts:

• A) Orange Corporation will be allowed to deduct the interest expense in 2018 and Rodney will be required to report the interest income in 2019.
• B) Orange Corporation will be allowed to deduct the interest expense in 2019 and Rodney will be required to report the interest income in 2018.
• C) Orange Corporation will be allowed to deduct the interest expense in 2018and Rodney will be required to report the interest income in 2018.
• D) Orange Corporation will be allowed to deduct the interest expense in 2019 and Rodney will be required to report the interest income in 2019.
• E) None of the above.

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Definitions:

Sensory Register

The component of memory where sensory information is stored for a very short period of time.

Short-Term Memory

The capacity for holding a small amount of information in an active, readily available state for a short period of time.

Working Memory

A cognitive system with a limited capacity that is responsible for temporarily holding information available for processing.

Three-Box Model

A model of memory that proposes three stages of memory processing: sensory memory, short-term memory, and long-term memory.