Bently Poster Company pays a bonus to its officers of 8 percent of net income and pays
Question:
Bently Poster Company pays a bonus to its officers of 8 percent of net income and pays dividends to its shareholders in the amount of 75 percent of net income. On January 1, 2020, the company purchased equipment for $400,000. This asset will be depreciated over a ten-year period. Salvage value is expected to be zero. Assume that the bonus payment is not included as an expense in the calculation of reported income.
INSTRUCTIONS:
Assume that sales and operating expenses (excluding depreciation) for 2020 are $250,000 and $140,000, respectively. Also assume a 20% tax rate. Compute the bonus and dividend payments for 2020 if the company uses the following:
a. The straight-line method of depreciation
b. The double-declining-balance method of depreciation
c. The straight-line method of depreciation, assuming a five-year useful life
Step by Step Answer: