Woodcrafters Requires an Average Accounting Return (AAR)of at Least 17

question 51

Multiple Choice

Woodcrafters requires an average accounting return (AAR) of at least 17 percent on all fixed asset purchases.Currently,it is considering some new equipment costing $178,000.This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value.The annual net income from this equipment is estimated at $10,100,$10,300,$17,900,and $19,600 for the four years.Should this purchase occur based on the accounting rate of return? Why or why not?

• A)Yes, because the AAR is less than 17 percent
• B)Yes, because the AAR is equal to 17 percent
• C)Yes, because the AAR is greater than 17 percent
• D)No, because the AAR is less than 17 percent
• E)No, because the AAR is greater than 17 percent

Account for the effect of investee's net income and dividends on investor's financial statements.

Calculate and account for the equity in investee income.

Determine the impact of intra-entity transactions on the investment account.

Prepare appropriate journal entries related to the equity method of accounting.

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Definitions:

Multiple Regression

A statistical technique used to model the relationship between two or more independent variables and a dependent variable by fitting a linear equation to observed data.

Nominal Variable

A categorical variable with two or more categories that have no intrinsic ordering to them.

Regression Model

A mathematical method applied to forecast the outcome of a target variable by analyzing the influence of one or several predictor variables.

Indicator Variable

A variable that takes on the value of 0 or 1 to indicate the absence or presence of some categorical effect or attribute.