The Accounting Firm of Pie and Lowell Is Examining Its

question 32

Multiple Choice

The accounting firm of Pie and Lowell is examining its client base to determine how profitable its regular clients are.Its analysis indicates that Chico,Inc.paid $116,000 in fees last year,but cost the firm $124,000 ($106,000 in billable labor,supplies,and copying,and $18,000 in allocated common fixed costs) .If Pie and Lowell dropped Chico,Inc.as a client,and all fixed costs are unavoidable,how would profit be affected?

• A)$0
• B)Increase $8,000
• C)Decrease $10,000
• D)Decrease $116,000

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Definitions:

Carrying Amounts

The value at which an asset is recognized on the balance sheet, after deducting accumulated depreciation or amortization.

Goodwill

An intangible asset that arises when a buyer acquires an existing business at a price higher than the fair market value of its net identifiable assets.

Fair Market Value

is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.

Identifiable Assets

Assets that can be separately identified and valued in a business combination, distinguishable from goodwill.