Percy Productions Has Three Models: D, E, and F

question 144

Multiple Choice

Percy Productions has three models: D, E, and F. The following information is available: Percy Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Assuming Percy Productions discontinues line F and is able to double the production and sales of model E without increasing fixed costs. What effect will this have on operating income?

• A)Increase $12,000
• B)Decrease $12,000
• C)Increase $33,000
• D)Decrease $33,000

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Definitions:

Retained Earnings

The portion of a company's profits not distributed to shareholders but instead reinvested in the business or kept as reserve.

Partial Goodwill Method

An accounting approach where goodwill is calculated only for the portion of a subsidiary owned by the parent company.

Non-controlling Interest

The portion of equity interest in a subsidiary not attributable directly or indirectly to the parent company.

Acquisition Date

The specific date on which control of one corporation is acquired by another, dictating the measurement of values for transaction accounting.