Fran's Florist is a C corporation and has chosen the accrual method of accounting. Judy is a 51% owner of the corporation.
The corporation year-end is June 30, and Judy is a calendar year cash basis taxpayer. Judy made a loan to the corporation in January of the current year.
She received $500 per month in interest from the corporation, beginning in February.
At the end of the corporation's tax year, it had paid Judy $2,500 in interest on the loan.
The corporation recorded the payments in its books for the year ending on June 30.
How much interest should the corporation deduct for its payments to Judy on its tax return for the year ending on June 30?
a)$ 0
b) $5,500
c) $2,500
d) $6,000