Calculation of Bonus

problem Information: two typical bonus plans have the following characteristics (both of which require the corporation to calculate the bonus before it determines the income tax.

1. Bonus is based on Net Income (income statement definition) before taking the bonus

2. Bonus is based on Net income after deducting bonus and income taxes FACTS: ABC Corp has net income of $260,000 before deducting the bonus and before any income tax expense. The tax rate is 30%. The bonus rate is 8%.

To do:

1. Calculate the bonus and income tax if the bonus is computed on income after deducting income taxes, but before deducting the bonus.

2. Calculate the bonus and income tax if the bonus is computed on net income after deducting both income taxes and the bonus. This one requires modification to the formula to include the tax deduction before calculating the bonus.