[lindsey.malia]

Hello,

This question has been posted before, but I am not understanding the explanation that was provided. The answer I am getting is 126,000. Income before before bonus and tax is 1.2 million. 1.2 million less tax of .36 million (30%) is .84 million. Bonus is 15% of .84 million or .126 million. The explanation provided is:

3. Let B = bonus and T = income tax

B = .15(1.2 million – T)

T = .30(1.2 million – B)

B = .15(1.2 million – [.30(1.2 million – B)])

B = .15(1.2 million – [.30(1.2 million) – .30B])

B = .15(1.2 million – .36 million + .30B)

B = .15(.84 million + .30B)

B = .126 million + .045B

.955B = .126 million

B = .126 million/.955 = 131,937

Since the bonus is paid before year end, the entry would be:

Salary expense 131,937

Cash 131,937