Twin City Manufacturing Corporation Is an Accrual Basis Taxpayer

Multiple Choice

Twin City Manufacturing Corporation is an accrual basis taxpayer. Twin City Manufacturing provides medical insurance for its employees through a self-insured reimbursement plan. Twin City Manufacturing pays $100 per month per employee into the plan fund. The fund is then used to reimburse employees' medical expenses. During the current year, Twin City Manufacturing Corp. pays $12,000 into the fund and pays medical reimbursement claims of $10,600.
I.If Twin City Manufacturing is an accrual basis taxpayer it can deduct $12,000.
II.If Twin City Manufacturing is a cash basis taxpayer it can deduct $10,600.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.