Question

Able Co. provides an incentive compensation plan under which its president receives a bonus equal to 10% of the corporation’s income before income tax but after deduction of the bonus.

If the tax rate is 40% and net income after bonus and income tax was $360,000, what was the amount of the bonus?
A. $36,000
B. $60,000
C. $66,000
D. $90,000

Answer 1

correct option is B. $60,000

Step-by-step explanation:

given data

net income = $360,000

tax rate = 40%

bonus = 10%

solution

first we get here pre tax income

we know after tax income is $360,000

so Pre-tax income will be = $360,000 ÷ ( 1- tax rate ) .........1

Pre-tax income =
`(360000)/(0.60)`

Pre-tax income = $60000

now we get Bonus that is

Bonus = Pre tax income × 10%

Bonus = $60000 × 10%

Bonus = $60000

so correct option is B. $60,000