Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Answer:
a. Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman's attorneys estimate the potential loss will be $4,500,000.
- Describe the situation in a note to the financial statements.
Since the event is possible but not likely, it should be disclosed in the footnotes of the financial statements.
b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.
Since this is a frivolous lawsuit, there is no need to disclose it.
c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $75,000.
- Record an expense and a liability based on estimated amounts.
Since the negative outcome is probable and you were able to quantify your losses, you must record the expense for $75,000 and include the amount as a current liability.
Answer:
A) decrease the degree of operating leverage
Explanation:
The contribution margin is
sales - variable:
(sales + 2) - (variable + 2) = sales - variable
no change
so B is FALSE
as the contribution margin ratio is:
(sales - variable ) / sales
this increase will impact the contribution margin ratio.
(sales + 2 - (variable +2))/ (sales + 2)
(sales - variable) / (sales + 2)
the CMR will decrease.
so D is FALSE
the break-even on sales will increase as the CMR decreases
more units are needed to fullfil the fixed cost
so C is FALSE
A) decrease the degree of operating leverage
ΔEBIT / Δrevenue
sales increase and the variable cost increases
a change in the sales revenue will not be as efficient as it was before the degree of leverage will decrease.
