Discuss the appropriate treatment in the financial statements of each of the following. (a) An amount of $113,000 realized in excess of the cash surrender value of an insurance policy on the life of one of the founders of the company who died during the year. (b) A profit-sharing bonus to employees computed as a percentage of net income. (c) Additional depreciation on factory machinery because of an error in computing depreciation for the previous year. (d) Rent received from subletting a portion of the office space. (e) A patent infringement suit, brought 2 years agoagainst the company by another company, was settledthis year by a cash payment of $725,000.(f) A reduction in the Allowance for Doubtful Accountsbalance because the account appears to be considerablyin excess of the probable loss from uncollectiblereceivables
Chapter 7 - Cost-volume-profit analysis • Cost-volume-profit {CVP) analysis- allows usto look at the relationship between costs, the number of units produced and profit Profit= Sales- Variable costs- Fixed costs ana ys1s 1. Salesprice 2. Volume 3. Variable costs 4. Fixedcosts 5. Profit or loss CVPassumptions 1. The only factor that affects costs is a change in volume 2. Managers classify all costs asfixed or variable and these costs are linear within the relevant range 3. Salesrevenue is linear within the relevant range 4. Inventory levels do not change 5. The salesmix stays constant Contribution margin income state
