North Inc. is a calendar-year, accrual-basis taxpayer. At the end of year 1, Nor

Question

North Inc. is a calendar-year, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes. • $15,050 for Lisa Tanaka, a 25 percent shareholder. • $16,900 for Jared Zabaski, a 30 percent shareholder. • $13,200 for Helen Talanian, a 25 percent shareholder. • $5,550 for Steve Nielson, a 5 percent shareholder. Unless stated otherwise, assume these shareholders are unrelated. How much of the accrued bonuses can North Inc. deduct in year 1 under the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)

a. North paid the bonuses to the employees on March 1 of year 2.

c.

North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other’s stock in North.

d.

North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen are related to each other, so they are treated as owning each other’s stock in North.

North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other’s stock in North.

d.

North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen are related to each other, so they are treated as owning each other’s stock in North.

Explanation / Answer

a.

As the bonuses are paid within 2.5 months of year end so full amount will be deducted in year 1.

c.

As Lira and Jared are related to each other so bonus will be deducted in year 2. and for remaining two bonus will be deducted in year 1.

d.

All the bonus will be deducted in year 1 as the share of Lisa and Helen is 50% which is not more than 50% shre required.

Particulars Amount ($) Lisa Tanaka 15,050 Jared Zabaski 16,900 Helen Talanian 13,200 Steve Nielson 5,550 50,700

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