Two Entities, Cooper Company and Magic Company, Share a Common

question 179

Multiple Choice

Two entities, Cooper Company and Magic Company, share a common warehouse facility.Total costs for the facility are budgeted at $2,000,000.Accountants have estimated that if Cooper Company did not use the facility the cost incurred would be reduced by 30 percent.What amount of the budgeted cost should be allocated, respectively, to Cooper and Magic if the incremental allocation method is used? Assume that Magic is he primary party.

• A)$0; $1,400,000
• B)$0; $2,000,000
• C)$1,400,000; $600,000
• D)$700,000; $1,300,000
• E)$600,000; $1,400,000

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Required Reserve Ratio

A mandated reserve that banks must keep on hand, usually a percentage of their deposits, determined by the central bank to ensure financial stability.

Checkable Deposits

Checkable deposits are bank account balances that depositors can easily withdraw or write checks against at any time, constituting a primary medium of exchange for personal and business transactions.

Required Reserve Ratio

The proportion of depositors' balances banks must have on hand as cash, mandated by the central bank.