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Accounts Payable

Tyler Co. has a contract with its president to pay her a 5% bonus for 2004 and 2005. The federal income tax rate is 30% during these two years.

1. In 2004, income before deductions for the bonus and federal income taxes was $400,000. If the bonus is based on income before deduction of the bonus but after deduction of income tax, the bonus (to the nearest dollar) is:
a. $13,793
b. $14,000
c. $14,221
d. $20,000

2. In 2005, income before deductions for the bonus and federal income taxes was $600,000. If the bonus is based on income after deductions for the bonus and income tax, the bonus (to the nearest dollar) is:
a. $19,719
b. $20,000
c. $20,290
d. $30,000

3. Which of the following is generally associated with payables classified as accounts payable?

Periodic Payment of Interest Secured by Collateral
a. No No
b. No Yes
c. Yes No
d. Yes Yes

Solution Preview

1. Take 5% of income before taxes without any other deductions = .05 * 400,000 = 20,000

2. Take 5% of income after taxes and bonus deductions
Taxes = ...

$2.19