Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests

E19-19 Impact on breakeven point if sale price, variable costs, and fixed costs change

Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests. Variable costs of $100 per student include trainers’ wages, study materials, and gasoline. Annual fixed costs of $75,000 include the training facility and fleet of cars.

Requirements
1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to $220 per student.
c. Decrease variable costs to $50 per student.
d. Decrease fixed costs to $60,000.

2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.

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The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence

E11-18 (Impairment) The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2007. On December 31, 2007, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future.

Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2007.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2008, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?


Click here for the solution: The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence