For the year ended december 31, 2013, lopez company has implemented an employee bonus program equal to 3% of lopez's net income, which employees will share equally. lopez's net income (prebonus) is expected to be $1,400,000, and bonus expense is deducted in computing net income.

1.

$42,000

2.

Dr. Bonus Expense $42,000

Cr. Employees Bonus Payable $42,000

3.

Dr. Employees Bonus Payable $42,000

Cr. Cash $42,000

Explanation:

As Bonus is Based on the Net Income value

Net Income (pre bonus) = $1,400,000

Bonus rate = 3% of Net Income

Bonus value = $1,400,000 x 3% = $42,000

2.

A liability is created while recording the expense of the bonus. Expense has debit nature so, it is debited to record it and Liability has credit nature so, it is credited.

3.

As cash is paid, to reduce the amount of cash, we credited the cash account because it has debit nature as an asset.

Liability is paid off, to reduce the balance of liability we have debited the liability account because it has credit nature.