Which of the following is a characteristic of a performance bonus?

• A. It is a fixed monthly salary paid regardless of performance.
• B. It is an additional payment awarded based on achieving specific targets or goals.
• C. It is a type of expense recorded as depreciation.
• D. It is a mandatory deduction from an employee's paycheck.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a performance bonus: A performance bonus is an additional payment awarded to employees based on their achievement of specific targets or goals. It is not a fixed salary, mandatory deduction, or related to depreciation.
2. Eliminate incorrect options: Review each option and determine whether it aligns with the definition of a performance bonus. For example, a fixed monthly salary is unrelated to performance, and depreciation is an accounting expense, not a bonus.
3. Focus on the correct option: Identify the option that matches the definition of a performance bonus, which is an additional payment tied to achieving specific targets or goals.
4. Relate the concept to accounting: In financial accounting, performance bonuses are recorded as an expense under employee compensation, as they represent additional payments made by the company.
5. Apply the concept: Use this understanding to answer similar questions or analyze how performance bonuses impact financial statements, such as the income statement where they increase employee-related expenses.