A business has a gross income of $1.32 million. It has promised to pay the CEO a
Question:
A business has a gross income of $1.32 million. It has promised to pay the CEO a bonus of 20% of net income, which is income after taxes. But the bonus is not subject to taxes because the bonus is an operating expense. The total tax owed is 20% of gross income less the bonus. Our goal is to find the company profit after the bonus and taxes are paid. Let B be the amount on which the bonus is based, and let T be the amount on which taxes are calculated, both in millions of dollars.
(a) Express the taxes paid in terms of the variable T.
(b) The gross income of $1.32 million equals the amount B on which the bonus is based plus the taxes paid. Express this as an equation involving T and B. (Part (a) may be helpful.)
(c) Express the bonus paid in terms of the variable B.
(d) The gross income also equals the amount T on which taxes are based plus the bonus paid. Express this as an equation involving T and B. (Part (c) may be helpful.)
(e) Solve the system of two equations in two unknowns from parts (b) and (d) for the variables T and B.
(f) How much is the bonus?
How much is paid in taxes?
How much profit is left over?
Essentials of Federal Taxation 2019
ISBN: 9781260190045
10th edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver