Patricia and Her Daughter Sheila Each Own 50% of Draper

Multiple Choice

Patricia and her daughter Sheila each own 50% of Draper, Inc. Patricia is the president and CFO of the corporation and receives a salary of $125,000. Other individuals with similar responsibilities as Patricia are paid approximately the same salary. Sheila, who is vice president, is paid a salary of $50,000. However, Sheila is not involved in the business decisions and rarely visits the office. Which of the following are correct statements?
I.Draper can deduct $175,000 as salary expense.
II.Sheila must report $50,000 as income.
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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.