ExpertHard1 markMultiple Choice
CPA · Question 29 · Area II: Balance Sheet Accounts
A company pays a bonus to its CEO equal to 5% of income after deducting the bonus and taxes. Income before bonus and taxes is $500,000. The tax rate is 30%. What is the amount of the bonus?
A company pays a bonus to its CEO equal to 5% of income after deducting the bonus and taxes. Income before bonus and taxes is $500,000. The tax rate is 30%. What is the amount of the bonus?
Answer options:
A.
$25,000
B.
$16,908
C.
$17,500
D.
$23,810
How to approach this question
Set up equations.<br/>B = 0.05 (Income - B - T)<br/>T = 0.30 (Income - B)<br/>Substitute T into B equation.<br/>B = 0.05 (500,000 - B - [0.30(500,000 - B)])<br/>B = 0.05 (500,000 - B - 150,000 + 0.3B)<br/>B = 0.05 (350,000 - 0.7B)<br/>B = 17,500 - 0.035B<br/>1.035B = 17,500<br/>B = 16,908 (approx check math). Let's re-solve carefully.
Full Answer
B.$16,908✓ Correct
B
.
Common mistakes
Circular reference errors.
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