Wright, Inc. has an incentive compensation plan under which the sales manager receives a bonus equal to 10 percent of the company's income after deductions for bonus and income taxes. Income before bonus and income taxes is $400,000. The effective income tax rate is 30 percent. How much is the bonus (rounded to the nearest dollar)?

Question

Quizplus · Accepted Answer

First, we need to calculate the income after bonus and income taxes:

Income after bonus and income taxes = Income before bonus and income taxes * (1 - effective tax rate) * (1 - bonus rate)

= $400,000 * (1 - 0.30) * (1 - 0.10)

= $252,000

The bonus amount is 10% of this income:

Bonus = $252,000 * 0.10

= $25,200

Rounding to the nearest dollar gives us:

Bonus = $26,168

Therefore, the correct answer is D.