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Show the solution on how the bonus is computed

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Reference no: EM132554906

N Company has an agreement to pay the sales manager a bonus if 5% if the entity's earnings. The income for the year before bonus and tax is 5,250,000. The income tax rate is 30% of income after bonus.

Required

Question 1: Show the solution on how the Bonus is computed. (Refer to the formula)

1. Bonus is a certain percent of income before bonus and before tax. 262,500

2. Bonus is a certain percent of income after bonus but before tax. 250,000

3. Bonus is a certain percent of income after bonus and after tax. 177,536

4. Bonus is a certain percent of income after tax but before bonus. 186,548

Formula:

I = Income before bonus and before tax

B = Bonus

T = Tax- tax is usually computed by multiplying income after bonus x tax rate

r = % of bonus

1. Bonus is expressed as a certain percent of income before bonus and before tax

B = I x r

2. Bonus is expressed as a certain percent of income after bonus but before tax.

B = (I-B)r

3. Bonus is expressed as a certain percent of income after bonus and after tax

B = (I-B-T)r

T = (I-B)tax rate

4. Bonus is expressed as a certain percent of income after tax but before bonus

B = (I-T)r

T = (I-B)tax rate

Reference no: EM132554906

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