Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1,...

20. Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1, 2007. The corporation accrued $45,000 of interest expense on the loan on December 31, 2007. It pays the interest to Rodney, a cash basis taxpayer, on April 1, 2008. Under these facts: a. The corporation will be allowed to deduct the interest expense in 2007 and Rodney will be required to report the interest income in 2008. b. The corporation will be allowed to deduct the interest expense in 2008 and Rodney will be required to report the interest income in 2008. c. The corporation will be allowed to deduct the interest expense in 2008 and Rodney will be required to report the interest income in 2007. d. The corporation will be allowed to deduct the interest expense in 2007 and Rodney will be required to report the interest income in 2007. e. None of the above. ANS: B A corporation that uses the accrual method cannot claim a deduction for a