Problem 6-41 (LO. 3, 4)

Amber Corporation, a publicly held corporation, currently pays its president an annual salary of $900,000. As a means of increasing company profitability, the board of directors increased the president's compensation effective January 1, 2017, with a performance-based compensation program. This program increased the president's compensation by $300,000 in 2017 and $350,000 in 2018 and 2019. Her compensation under this performance-based compensation program is expected to remain at $350,000 in 2020.

Fill in the blank of the letter to Amber Corporations's board of directors that identifies the amount of compensation that will be deductible by Amber in 2020 and explains whether any changes should be made to the president's compensation plan in 2020. Address the letter to the board chairperson, Angela Riddle, whose address is 100 James Tower, Cleveland, OH 44106.

Maloney, Young, Nellen, & Persellin, CPAs

5191 Natorp Boulevard

Mason, OH 45040

September 16, 2020

Ms. Angela Riddle, Chairperson

Board of Directors

Amber, Inc.

100 James Tower

Cleveland, OH 44106

Dear Ms. Riddle:

I am responding to your inquiry regarding the current compensation plans for Amber Corporation's president. The Board agreed to amend the president's compensation plan effective January 1, 2017, to allow an increase in the compensation she can earn through a performance-based compensation plan. In 2017, the president earned an additional $300,000 under her revised contract. This amount increased to $350,000 in 2018 and 2019, and it is projected that she will increase her earnings by $350,000 under this plan in 2020.

Fill in the blank.

In general, any salary paid to the president in excess of $1,000,000is deemed excessive executive compensation and not deductible.Before2018, compensation earned under a performance-based compensation optionwas notsubject to this limitation. Therefore, in 2017, Amber Corporation deducted $__________as compensation.