Solution
Robert answered on
Dec 29 2021
Answer
Chapter 9 – Problem.
Problem 9-86 (page 379).
Profit sharing. Pete
orough Medical Devices makes devices and equipment that
it sells to hospitals, the organization has a profit-sharing plan that is worded as
follows:
The company will make available a profit-sharing pool that will be the lower
of the follow two items:
1. 40% of income before taxes in excess of the target profit level, which is
18% of net assets, or
2. $7 million.
The individual employee is paid a share of the profit-sharing pool equal to
the ratio of that employee’s salary to the total salary paid to all employees.
Required:
a) If the company earned $45 million of earnings before taxes and had net
assets of $100 million, what would be the amount available for
distribution from the profit-sharing pool?
Profit sharing pool 
Particulars Amount $
Earnings before Taxes 45,000,000
Less Return on Net Assets (100,000,000*18%) (18,000,000)
Net Income 27,000,000
Net Income @ 40% (27000000*40%) 1,080,000
OR
$7,000,000
Whichever is lower $7,000,000
Profit sharing pool  $7,000,000
) Suppose that Marg Watson’s salary was $68,000 and that total salaries paid in
the company were $25 million. What would Marg’s profit share be?
Marg Watson’s Profit share be
= $ 7,000,000 * $68,000 / $25,000,000

 $19,040
c) ...