Huang
Inc. has a contract with its president, Ms. Shen, to pay her a bonus during
each of the years 2011, 2012, and 2013. Assume a corporate income tax rate of
40% during the three years. The profit before deductions for bonus and income
taxes was $250,000 in 2011, $308,000 in 2012, and $350,000 in 2013. The
president's bonus of 12% is deductible for tax purposes in each year and is to
be calculated as follows:
(a)
In 2011, the bonus is to be based on profit before deductions for bonus and
income tax.
(b)
In 2012, the bonus is to be based on profit after deduction of bonus but before
deduction of income tax.
(c)
In 2013, the bonus is to be based on profit before deduction of bonus but after
deduction of income tax.
Instructions
Calculate
the amounts of the bonus and the income tax for each of the three years.
(B = bonus; T
= taxes)
|
(a)
|
B
|
=
|
0.12
($250,000)
|
|
|
B
|
=
|
$30,000
|
|
|
T
|
=
|
.40
($250,000 – $30,000)
|
|
|
T
|
=
|
$88,000
|
|
|
|
|
|
|
(b)
|
B
|
=
|
0.12
($308,000 – B)
|
|
|
B
|
=
|
$36,960 –
.12B
|
|
|
1.12B
|
=
|
$36,960
|
|
|
B
|
=
|
$33,000
|
|
|
T
|
=
|
0.40
($308,000 – $33,000)
|
|
|
T
|
=
|
$110,000
|
|
|
|
|
|
|
(c)
|
B
|
=
|
0.12
($350,000 – T)
|
|
|
T
|
=
|
0.40
($350,000 – B)
|
|
|
B
|
=
|
0.12
[$350,000 – 0.40 ($350,000 – B)]
|
|
|
B
|
=
|
0.12
($350,000 – $140,000 + .4B)
|
|
|
B
|
=
|
$25,200 +
.048B
|
|
|
0.952B
|
=
|
$25,200
|
|
|
B
|
=
|
$26,470.59
|
|
|
T
|
=
|
.40
($350,000 – $26,470.59)
|
|
|
T
|
=
|
$129,411.76
|
