Turner, a successful executive, is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $600,000 annual salary, payable at the rate of $50,000 per month.Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.
A)If the employer accepts Turner's counteroffer, Turner will recognize $55,000 ($660,000 / 12) each month.
B)If the employer accepts Turner's counteroffer, Turner will recognize as gross income $40,000 per month and $180,000 in year 5.
C)If the employer accepts Turner's counteroffer, Turner will be in constructive receipt of $50,000 per month.
D)If the employer accepts Turner's counteroffer, Turner will be in constructive receipt of $50,000 per month and the $180,000 bonus.
E)None of the above.

Question

Quizplus · Accepted Answer

Turner's gross income would be $40,000 per month and the $180,000 bonus would be recognized as gross income in year 5. Choice A is incorrect because if Turner's counteroffer is accepted, he would only recognize $55,000 per month if he received the original offer of $600,000 annually. Choice C is incorrect because Turner would only be in constructive receipt of $40,000 per month if his counteroffer is accepted. Choice D is incorrect because Turner would only be in constructive receipt of $40,000 per month and would only recognize the bonus in year 5.

Turner, a Successful Executive, Is Negotiating a Compensation Plan with His