If total credits exceed total debits in the Balance Sheet columns ...

[kellyjaisingh]

If total credits exceed total debits in the Balance Sheet columns of a work sheet,
 a. a mistake has been made.
  b. a net income has occurred.
  c. assets exceed liabilities.
  d. no conclusion can be drawn until the closing entries have been made.
  e. a net loss has occurred.

Question 2

High-low method, regression analysis.
 
  (CIMA, adapted) Anna Schaub, the financial manager at the Mangiamo restaurant, is checking to see if there is any relationship between newspaper advertising and sales revenues at the restaurant. She obtains the following data for the past 10 months:
 
  She estimates the following regression equation:
 
  Required:
  1. Plot the relationship between advertising costs and revenues. Also draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
  2. Use the high-low method to compute the function relating advertising costs and revenues.
  3. Using (a) the regression equation and (b) the high-low equation, what is the increase in revenues for each 1,000 spent on advertising within the relevant range? Which method should Schaub use to predict the effect of advertising costs on revenues? Explain briefly.

[deja]

Answer to Question 1

E

Answer to Question 2

1. Solution Exhibit 10- 32 presents the plots of advertising costs on revenues.

EXHIBIT 10- 32
Plot and Regression Line of Advertising Costs on Revenues

Solution Exhibit 10- 32 also shows the regression line of advertising costs on revenues. We evaluate the estimated regression equation using the criteria of economic plausibility, goodness of fit, and slope of the regression line.

Economic plausibility. Advertising costs appears to be a plausible cost driver of revenues. Restaurants frequently use newspaper advertising to promote their restaurants and increase their patronage.

Goodness of fit. The vertical differences between actual and predicted revenues appears to be reasonably small. This indicates that advertising costs are related to restaurant revenues.

Slope of regression line. The slope of the regression line appears to be relatively stee