Question

Why is operating profits the best indicator of performance? Note: The operating profit amount allows the analyst to assess the operational performance of the firm apart from financing and investing activities.  Select two of the following.  Contrast choices and 3 with    2 and 4, which set is correct?

Question 23 options:

	Operating profit includes the sales from its products and services less cost of goods sold and all other operating expenses incurred to sell its products and services
	Operating profit includes nonoperating revenues and expenses such as interest expense, dividend and interest income, gains and losses on sales of assets, equity earnings and no taxes.
	Operating profit does not include nonoperating revenues and expenses such as interest expense, dividend and interest income, gains and losses on sales of assets, equity earnings or taxes.
	The operating profit amount allows the analyst to assess the operational performance of the firm apart from financing and investing activities.

Question 24 (4 points)

RBO Company purchased 35% of the voting common stock of YJD Company on January 1 and paid $800,000 for the investment. YJD Company reported $50,000 of earnings for the year and paid $10,000 in cash dividends.   The cost method is not appropriate for this problem. How should this investment be accounted for by the investor?

Question 24 options:

	Consolidation
	Noninfluential entity
	Cost method
	Equity method

Answer 1

Answer 23.

Two choices that would be correct are 3 and 4.

Answer 23.

Correct option is equity method.

Cost method is when little percentage is owned and when more than little but less than full control is there, equity method is used.