Question

Principle company sponsors a Profit Sharing plan with a 15% contribution using a standard allocation formula. Scott, the owner, makes $200,000. Cindy, a long-term employee makes $100,000, and Brian a new employee is making $60,000. How much does each employee receive in their profit-sharing account?

Answer 1

Each employee(Cindy and Brian) receive in their profit-sharing account is calculated as follows:

Scott, the owner of Principle company makes $200,000 and Profit Sharing plan with a 15% contribution using a standard allocation formula.

Total Profit allocable to employees   = $200,000 *15%

= $30,000

Total earning of employees = Earning of employee Cindy + Earning of employee Brian

= $100,000 + $60,000

= $160,000

1)Cindy,an employee will receive the profit in his profit-sharing account is

= $30,000 * ($100,000/$160,000)

= $18,750

2)Brian ,an employee will receive the profit in his profit-sharing account is

= $30,000 * ($60,000/$160,000)

= $11,250

So, Cindy,an employee will receive  $18,750 and Brian ,an employee will receive $11,250 their profit-sharing account