Question

a company with a december 31 year-end plans to pays its president a bonus at the end of december. the bonus will be based on the current year's year-to-date income at the time the bonus is paid. the company should

Answer 1

The company should recognize the president's bonus as an expense in the same fiscal year the income was earned, following the matching principle of accounting.

Step-by-step explanation:

The company should recognize the bonus as an expense in the current year's financial statements, as it is based on the year-to-date income and is due to be paid at the end of December which coincides with the fiscal year-end. The recognition of the bonus aligns with the matching principle, which states that expenses should be recorded in the same period as the revenues they helped generate. To calculate and record the bonus correctly, the company should estimate the bonus amount based on the current year's income before closing the books.

For example, if the year-end income for the previous year (December 31) was $500,000 and the accumulated income for the current year (December 31) is $700,000, then the current year's year-to-date income would be $200,000 ($700,000 - $500,000). The president's bonus can be calculated as a percentage of this year-to-date income.