Answered: Required: Prepare the requested journal…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Excessive Executive Compensation November Corporation (the Company) is a privately owned C Corporation. During a recent IRS examination of the Company’s federal form 1120 for the year ended December 31, 2020, the IRS has concluded and ownership of November Corporation has agreed that the compensation of the Company’s sole shareholder and President, Phil Piser, was excessive. Specifically, the parties have agreed that a reasonable amount of compensation for the calendar year 2020 would have been $240,000 annually and not the $600,000 which was paid. A similar payment ($600,000 annually) has been paid to Mr. Piser for the year ended December 31, 2021 which has not been closed. Mr. Piser has asked you to prepare a journal entry for the year ended December 31, 2021 that will reflect in the Company’s books and records the amount of compensation agreed to in this IRS examination. Mr. Piser has also asked that you share that journal entry with the Company’s payroll department in order for them to prepare the appropriate W-2 for him for 2021 and to amend, as appropriate, federal and state payroll tax returns. Required: Prepare the requested journal entry to correct the Company’s accounting records for the year 2021. Note that the Company maintains a general ledger account named Owner Salary and the Company has not yet closed its 2021 books.

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