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 $660,000 at the time the offer is accepted.
B) If the employer accepts Turner's counteroffer, Turner will recognize as gross income $55,000 per month [($480,000 + $180,000)/12].
C) If the employer accepts Turner's counteroffer, Turner will recognize $40,000 income each month for the year and $180,000 in year 5.
D) If the employer accepts Turner's counteroffer, Turner must recognize imputed interest income on the $180,000 to be received in 5 years.
E) None of these.

Question

Quizplus · Accepted Answer

If the employer accepts Turner's counteroffer, he will receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years. Therefore, he will recognize $40,000 income each month for the year and $180,000 in year 5. Choice A is incorrect because $660,000 is not a valid amount of income that Turner will receive. Choice B is incorrect because the $180,000 bonus in year 5 is not part of the monthly salary calculation. Choice D is incorrect because there is no imputed interest income to be recognized since the bonus payment is not a loan or investment.

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