At the end of October, year 1, Dunbar Corporation hired Specialty Training, an accrualbasis, calendar-year S corporation,
Question:
At the end of October, year 1, Dunbar Corporation hired Specialty Training, an accrualbasis, calendar-year S corporation, to provide a six-week training program for its employees. Dunbar paid Specialty its full training fee of $30,000 on the first day of training. After five weeks of training sessions, Dunbar cancelled the last week of training and demanded a refund of $5,000, because its employees felt the training was misrepresented and failed to provide the in-depth coverage of the topics they had specified. In January, year 2, Specialty refunded $5,000 to Dunbar. Specialty owners’ marginal tax rate for year 1 is 32 percent.
a. What choices does Specialty Training have to account for the $5,000 refund?
b. If Specialty owners’ marginal tax rate in year 2 is 37 percent, how should the company account for the refund for tax purposes?
c. If Specialty owners’ marginal tax rate in year 2 is 24 percent, how should the company account for the refund for tax purposes?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Taxation For Decision Makers 2019
ISBN: 9781119497288
9th Edition
Authors: Shirley Dennis Escoffier, Karen A. Fortin