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Question

Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.
Net income under option No. 1 = 52000
Net income under option No. 2 = 56000
Option No. 2 is more likely to leave a favourable impression on investors and creditors.


Assume that BMC provides an incentive bonus to the company president equal to 11 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with the higher bonus.
President's bonus under option No. 1 = ?
President's bonus under option No. 2 = ? Option No. 2 provides the president with a higher bonus.

Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company's income tax expense.
Income tax expense under option No. 1 =? Income tax expense under option No. 2 = ?
Option 1 minimize

Answer 1

President's bonus under option No. 1 = 5,720
President's bonus under option No. 2 = 6,160
Option No. 2 provides the president with a higher bonus.

Income tax expense under option No. 1 = 16,198
Income tax expense under option No. 2 = 17,444
Otion No. 1 minimizes the amount of the company's income tax expense.