Question

Cucumber Company concluded at the beginning of 2013 that the company's ownership interest in PickelCo had decreased to the point that it became appropriate to begin accounting for its investment as available for sale, rather than using the equity method as it had been doing. The balance in the investment account is $75,000 at the time of the change, and accountants working with company records determined that the balance would have been $50,000 if the investment had been accounted for as an available-for-sale investment. At the time of implementing the change to the available-for-sale method, if financial statements were prepared:

Answer 1

The firm's accounting profit can be calculated by subtracting the explicit costs from the total revenues.

Step-by-step explanation:

The firm's accounting profit can be calculated by subtracting the explicit costs from the total revenues. In this case, the firm had sales revenue of $1 million and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials. So, the accounting profit would be $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.