North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end

Question

North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes.

$8,850 for Lisa Tanaka, a 35 percent shareholder.

$10,400 for Jared Zabaski, a 30 percent shareholder.

$16,100 for Helen Talanian,a 15 percent shareholder.

$8,300 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.

Dedectible accrued bonuses :_____________

b. North paid the bonuses to the employees on April 1 of year 2.

Dedectible accrued bonuses :_____________

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.

Dedectible accrued bonuses :_____________

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.

Dedectible accrued bonuses :_____________

Explanation / Answer

A category in a company’s cash flow statement that accounts for external activities that allow a firm to raise capital and repay investors, such as issuing cash dividends, adding or changing loans or issuing more stock. Cash flow from financing activities shows investors the company’s financial strength. A company that frequently turns to new debt or equity for cash, for example, could have problems if the capital markets become less liquid.

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