1)
Baker Corporation is a calendar year taxpayer using the accrual method of accounting. In the current year, its
board of directors authorizes a $20,000 contribution to the Boy Scouts. Baker pays the contribution on March
12 of the next year. What is the maximum contribution allowed in current year? What is the maximum
contribution allowed in the next year? Explain your answer.
2)
Owens Corporation donates inventory having an adjusted basis of $30,000 and an FMV of $100,000 to County
Hospital, which is a qualified public charity. What is the amount of Owen’s deduction? Explain your answer.
3)
Rhynie Corporation uses the accrual method of accounting. Rhynie’s sole shareholder, Austen, uses the cash
method of accounting. Both taxpayers use the calendar year as their tax year. The corporation accrues a
$25,000 interest payment to Austen on December of the current year and makes the payment on March 10 of
the next year. What are the tax consequences of the transaction to both taxpayers in the current year and next
year? Explain your answer.
Sample Solution
