Today's question: FAR

Kern and Pate are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land valued at $15,000 for a 20% capital interest in the new partnership. Grant's cost of the land was $12,000. The partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant's capital account should be credited for?

A)   $12,000

B)   $15,000

C)   $16,000

D)   $19,000

Correct Answer: D

Explanation: Under the bonus method, the new partner's capital account is credited for 20% of the new balance of total capital. The new total capital is 95,000 ($60,000 + $20,000 + $15,000). Grant's capital balance will be 20% x $95,000, or $19,000. The bonus to Grant of $4,000 ($19,000 capital balance - $15,000 contribution) will be charged against the old partners capital accounts according to their profit and loss ratio.

Today's question: BEC

The most likely strategy to reduce the breakeven point would be to

A)   Increase both the fixed costs and the contribution margin.

B)   Decrease both the fixed costs and the contribution margin.

C)   Decrease the fixed costs and increase the contribution margin.

D)   Increase the fixed costs and decrease the contribution margin.

Correct Answer: C

Explanation: Breakeven point represents your fixed costs divided by your contribution margin. Mathematically, by decreasing your numerator (fixed costs) or increasing your denominator (contribution margin), your breakeven point must decrease.