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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Bonus Obligation and Income Tax Expense James Kimberley, president of National Motors, receives a bonus of 10% of National’s profits above $1,500,000, before the bonus and the corporation’s income taxes are deducted. National’s effective income tax rate is 21%. Profits before income taxes and his bonus are $5,000,000 for 2019.

Required:

  1. 1. Compute the amount of Kimberley’s bonus for 2019.
  2. 2. Compute National Motors’ income tax expense for 2019.
  3. 3. Prepare journal entries at the end of 2019 to record the bonus and income taxes.
  4. 4. Show how the bonus and income taxes would be reported on National Motors’ December 31,2019, balance sheet.

1.

To determine

Calculate the amount of Person K’s bonus for 2019.

Explanation

Bonus:

Bonus is an additional payment made by the employer to the employees with their regular salary for their good performance.

Calculate the amount of Mr. K’s bonus for 2019.

Person K's bonus forthe year 2019 }=[ (Profit of N Motors beforeincome taxes and bonus )x

2.

To determine

Calculate the Company NM’s income tax expense for 2019.

3.

To determine

Prepare the journal entry to record the bonus and income taxes at the end of 2019.

4.

To determine

Show the manner in which the bonus and income taxes would be reported on Company NM’s balance sheet as of December 31, 2019.

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