The question is Speculate about the long-term effect the bonus plan is likely to have on the company. I am not sure what type of bonus the person is getting and the instructor does not tell us so I do not know how to answer this question. Any help would be appreciated.

Consider the perspective of liabilities and assets. Consider them recurring over a number of years...

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Originally Posted by smoothy

Consider the perspective of liabilities and assets. Consider them recurring over a number of years...

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I am at a loss with accounting. I understand liabilities and assets as I have read about them. Does the bonus have to do with liabilities because it is money being given with no return? I am not sure what it would have to do with assets.

Its money that's NOT going to be available for capitol improvement projects... depending on the circumstances investor dividends... it detracts from the corporate profit... and caries tax implications.

Profits feed cash reserves, Cash reserves are assets... spending it reduces them... there are a lot of interactions... actions have consequences. Sound like a thinking exercise, where there isn't one right answer, but to make you show the thought process you have approaching it.

Quote:

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Originally Posted by smoothy

Its money that's NOT going to be available for capitol improvement projects... depending on the circumstances investor dividends... it detracts from the corporate profit... and caries tax implications.

Profits feed cash reserves, Cash reserves are assets... spending it reduces them... there are a lot of interactions... actions have consequences. Sound like a thinking exercise, where there isn't one right answer, but to make you show the thought process you have approaching it.

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Got it. Thank you