Final answer:
The company can deduct $140,000 for the bonus in 2011 and the remaining $10,000 in 2013. No amount from this bonus is deductible in 2012 as none of the remaining bonus was paid during that year.
Step-by-step explanation:
When determining how much of a bonus is deductible for tax purposes, it's important to consider the timing of the accrual and payment. According to the facts provided, the company accrued a bonus of $150,000 to its owner/manager at the year-end of June 30, 2011. However, the payments were made in the following manner: $20,000 per month for 7 months in 2011, which totals $140,000, and the final $10,000 was paid in 2013.
Under an accrual method of accounting, expenses are deductible in the year they are incurred if all events have occurred that establish the liability and the amount can be determined with reasonable accuracy. In this case, the company can deduct the $140,000 in 2011 since this was both accrued and paid within the year. For the remaining $10,000, as it was paid in 2013, the deduction would be allowable in that year.
Therefore, the correct deduction sequence would be $140,000 in 2011 and $10,000 in 2013. No deductions for this bonus should be made in 2012 as it was not actually paid in that year.