Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $120,000. At the end of the year, Karl was paid a bonus of $100,000 because the firm had a good year. Stock Company deducted $220,000 as compensation expense for the year. Upon audit, $80,000 of the deduction was disallowed. Assume that Karl's tax bracket is 31 percent and Stock Company's is 34 percent. What is the dollar impact of the IRS reclassification?
Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $120,000. At the end of the year, Karl was paid a bonus of $100,000 because the firm had a good year. Stock Company deducted $220,000 as compensation expense for the year. Upon audit, $80,000 of the deduction was disallowed. Assume that Karl's tax bracket is 31 percent and Stock Company's is 34 percent. What is the dollar impact of the IRS reclassification?
Chapter9: Acquisitions Of Property
Section: Chapter Questions
Problem 25P
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Transcribed Image Text:Karl Stick is president of Stock Company. He
also owns 100 percent of its stock. Karl's
salary is $120,000. At the end of the year, Karl
was paid a bonus of $100,0O00 because the
firm had a good year. Stock Company
deducted $220,000 as compensation
expense for the year. Upon audit, $80,000 of
the deduction was disallowed.
Assume that Karl's tax bracket is 31 percent
and Stock Company's is 34 percent. What is
the dollar impact of the IRS reclassification?
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