Bonus Obligation and Income Tax Expense
Response to the following problem:
James Kimberley, president of National Motors, receives a bonus of 10% of National's profits after his bonus and the corporation's income taxes are deducted. National's effective income tax rate is 30%. Profits before income taxes and his bonus are $5,000,000 for 2010.
Required
1. Compute the amount of Kimberley's bonus for 2010.
2. Compute National Motors' income tax expense for 2010.
3. Prepare journal entries at the end of 2010 to record the bonus and income taxes.
4. Show how the bonus and income taxes would be reported on National Motors' December 31, 2010 balance sheet.