Multiple Choice
Demonstrating accountability in business implies which of the following?
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1. Introduction to Accounting
Types of Accounting
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Which of the following statements is true of a discretionary system of determining bonuses?
A
A discretionary system requires bonuses to be approved by external auditors.
B
Management has the flexibility to decide bonus amounts without a predetermined formula.
C
Employees receive bonuses only if specific quantitative targets are met.
D
Bonuses are always calculated based on a fixed percentage of net income.
Verified step by step guidance1
Step 1: Understand the concept of a discretionary system for determining bonuses. A discretionary system allows management to decide bonus amounts without being bound by a fixed formula or specific quantitative targets.
Step 2: Analyze the options provided in the question. Each option describes a different characteristic of bonus determination systems.
Step 3: Eliminate options that contradict the definition of a discretionary system. For example, external auditor approval or bonuses based on fixed percentages are not characteristics of a discretionary system.
Step 4: Focus on the option that aligns with the flexibility inherent in a discretionary system. Management has the ability to decide bonus amounts without a predetermined formula.
Step 5: Confirm that the correct answer reflects the flexibility and lack of rigid criteria in a discretionary system, as described in the problem.
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