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financial accounting
Financial Accounting 12th edition C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr. - Solutions
Becker Supply, Inc., opened an office in White Bear Lake, Minnesota. Becker incurred the following costs in acquiring land, making land improvements, and constructing and furnishing the new sales building:The company depreciates buildings over 30 years, land improvements over 15 years, and
Text World, Inc., reported sales revenue of $450,000, net income of $54,000, and average total assets of $360,000. Text World’s return on assets isa. 12.0%.b. 1.25%.c. 15.0%.d. 80.0%.
Harlem, Inc., was reviewing its assets for impairment at the end of the current year. Information about one of its assets is as follows:Net book value................................. $ 1,300,000Estimated future cash flows........... $ 1,050,000Fair (market) value........................... $
Suppose Speedy Delivery pays $62 million to buy Lone Star Overnight. The fair value of Lone Star’s assets is $80 million, and the fair value of its liabilities is $24 million. How much goodwill did Speedy Delivery purchase in its acquisition of Lone Star Overnight?a. $42 millionb. $24 millionc.
What gain or loss should Taylor record on the sale?a. Gain, $800b. Loss, $1,160c. Loss, $520d. Gain, $1,160Taylor Company purchased a machine for $9,800 on January 1, 2016. The machine has been depreciated using the straight-line method assuming it has a five-year life with a $1,400 residual value.
What is the book value of the machine on December 31, 2017?a. $2,100b. $6,440c. $8,400d. $9,800Taylor Company purchased a machine for $9,800 on January 1, 2016. The machine has been depreciated using the straight-line method assuming it has a five-year life with a $1,400 residual value. Taylor sold
Acton, Inc., uses the double-declining-balance method for depreciation on its computers. Which item is not needed to compute depreciation for the first year?a. Estimated residual valueb. Expected useful life in yearsc. Original costd. All the items listed are needed.
Kline Company failed to record depreciation of equipment. How does this omission affect Kline’s financial statements?a. Net income is overstated and assets are understated.b. Net income is overstated and assets are overstated.c. Net income is understated and assets are overstated.d. Net income is
Madison Corporation acquired a machine for $27,000 and has recorded depreciation for two years using the straight-line method over a five-year life and $8,000 residual value. At the start of the third year of use, Madison revised the estimated useful life to a total of 10 years. Estimated residual
At the beginning of last year, Bratworth Corporation purchased a piece of heavy equipment for $99,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $9,000. Bratworth used the equipment for 21,000 hours last year and 27,000 hours this year. Depreciation
Suppose you buy land for $2,800,000 and spend $1,100,000 to develop the property. You then divide the land into lots as follows:Category .......... Sale Price per Lot15 Hilltop lots................. $510,00015 Valley lots ................. $240,000How much did each Hilltop lot cost you?a.
Which of the following items should be accounted for as a capital expenditure?a. The monthly rental cost of an office buildingb. Costs incurred to repair leaks in a building’s roofc. Maintenance fees paid with funds provided by the company’s capitald. Taxes paid in conjunction with the purchase
Assume Howard Manufacturing Corporation completed the following transactions:a. Sold a store building for $690,000. The building had cost Howard Manufacturing $1,200,000, and at the time of the sale, its accumulated depreciation totaled $510,000.b. Lost a store building in a fire. The building cost
Hometown Supply Company reported the following information in its comparative financial statements for the fiscal year ended January 31, 2018:Requirements1. Compute the net profit margin ratio for the years ended January 31, 2018, and 2017. Did it improve or worsen in 2018?2. Compute asset
Assume Voltron Company paid $22 million to acquire Brighton Industries. Assume further that Brighton had the following summarized data at the time of the Voltron acquisition (amounts in millions):Brighton’s current assets had a current market value of $11 million, long-term assets had a current
Milton Printers incurred external costs of $700,000 for a patent for a new laser printer. Although the patent gives legal protection for 20 years, it was expected to provide Milton with a competitive advantage for only eight years due to expected technological advances in the industry. Milton uses
Bearcreek Mines paid $433,000 for the right to extract ore from a 450,000-ton mineral deposit. In addition to the purchase price, Bearcreek Mines paid a $155 filing fee to the county recorder, a $2,800 license fee to the state of Utah, and $95,045 for a geologic survey. Because the company
Canyon Truck Company is a large trucking company. The company uses the units-of-production (UOP) method to depreciate its trucks.To follow are facts about one Mack truck in the company’s fleet. When this truck was acquired in 2018, the tractor-trailer had cost $450,000 and was expected to remain
On January 2, 2018, Drake Furnishings purchased display shelving for $8,100 cash, expecting the shelving to remain in service for five years. Drake depreciated the shelving on a double-declining-balance basis, with $1,300 estimated residual value. On September 30, 2019, the company sold the
On January 1, 2017, Lincoln Manufacturing purchased a machine for $930,000. The company expected the machine to remain useful for eight years and to have a residual value of $110,000. Lincoln Manufacturing uses the straight-line method to depreciate its machinery. Lincoln Manufacturing used the
On January 1, 2018, Black Iron Bar & Grill purchased a building, paying $56,000 cash and signing a $101,000 note payable. The company paid another $60,000 to remodel the building. Furniture and fixtures cost $51,000, and dishes and supplies—a current asset—were obtained for $9,600. All
Lima Pizza bought a used Toyota delivery van on January 2, 2018, for $18,600. The van was expected to remain in service for four years (57,000 miles). At the end of its useful life, Lima management estimated that the van’s residual value would be $1,500. The van traveled 20,500 miles the first
During 2018, Ming’s Book Store paid $486,000 for land and built a store in Naperville, Illinois. Prior to construction, the city of Naperville charged Ming’s $1,000 for a building permit, which Ming’s paid. Ming’s also paid $15,000 for architect’s fees. The construction cost of $670,000
Portland Manufacturing bought three used machines in a $209,000 lump-sum purchase. An independent appraiser valued the machines as shown:Machine No. Appraised Value1 ..................... $73,1002 .................. $120,4003 .................... $21,500What is each machine’s individual cost?
Belvidere Self Storage purchased land, paying $170,000 cash as a down payment and signing a $180,000 note payable for the balance. Belvidere also had to pay delinquent property tax of $2,000, title insurance costing $2,500, and $3,000 to level the land and remove an unwanted building. The company
Assume Alfonso Corporation completed the following transactions:a. Sold a store building for $670,000. The building had cost Alfonso $1,600,000, and at the time of the sale, its accumulated depreciation totaled $930,000.b. Lost a store building in a fire. The building cost $300,000 and had
Handley Grocery Corporation reported the following information in its comparative financial statements for the fiscal year ended January 31, 2018:Requirements1. Compute the net profit margin ratio for the years ended January 31, 2018, and 2017. Did it improve or worsen in 2018?2. Compute asset
Assume Kaledan Company paid $15 million to acquire Roeder Industries. Assume further that Roeder had the following summarized data at the time of the Kaledan acquisition (amounts in millions):Roeder’s current assets had a current market value of $18 million, long-term assets had a current market
Sweitzer Printers incurred external costs of $400,000 for a patent for a new laser printer. Although the patent gives legal protection for 20 years, it was expected to provide Sweitzer with a competitive advantage for only ten years due to expected technological advances in the industry. Sweitzer
Mineral Mines paid $425,000 for the right to extract ore from a 250,000-ton mineral deposit. In addition to the purchase price, Mineral Mines paid a $110 filing fee to the country recorder, a $2,000 license fee to the state of Colorado, and $55,390 for a geologic survey. Because the company
Concord Truck Company is a large trucking company. The company uses the units-of-production (UOP) method to depreciate its trucks. To follow are facts about one Mack truck in the company’s fleet. When this truck was acquired in 2018, the tractor-trailer rig had cost $420,000 and was expected to
On January 2, 2018, Ellet Furniture purchased display shelving for $8,900 cash, expecting the shelving to remain in service for five years. Ellet depreciated the shelving on a double-declining-balance basis, with $1,100 estimated residual value. On August 31, 2019, the company sold the shelving for
On January 1, 2017, Stockton Manufacturing purchased a machine for $910,000. The company expected the machine to remain useful for eight years and to have a residual value of $80,000. Stockton Manufacturing uses the straight-line method to depreciate its machinery. Stockton Manufacturing used the
Fresno Consultants purchased a building for $440,000 and depreciated it on a straight-line basis over 40 years. The estimated residual value was $82,000. After using the building for 20 years, Fresno realized that the building would remain useful only 14 more years. Starting with the 21st year,
On January 1, 2018, Little City Bar & Grill purchased a building, paying $58,000 cash and signing a $110,000 note payable. The company paid another $62,000 to remodel the building. Furniture and fixtures cost $55,000, and dishes and supplies—a current asset—were obtained for $9,400. All
Presley Pizza bought a used Ford delivery van on January 2, 2018, for $22,000. The van was expected to remain in service for four years (80,000 miles). At the end of its useful life, Presley management estimated that the van’s residual value would be $2,000. The van traveled 32,000 miles the
During 2018, Chang’s Book Store paid $481,000 for land and built a store in Newark, New Jersey. Prior to construction, the city of Newark charged Chang’s $1,200 for a building permit, which Chang’s paid. Chang’s also paid $15,200 for architect’s fees. The construction cost of $679,900 was
Assume Karo Products, Inc., purchased conveyor-belt machinery. Classify each of the following expenditures as a capital expenditure or an immediate expense related to machinery:a. Periodic lubrication after the machinery is placed in serviceb. Special reinforcement to the machinery platformc. Major
Murphy Self Storage purchased land, paying $160,000 cash as a down payment and signing a $185,000 note payable for the balance. Murphy also had to pay delinquent property tax of $2,000, title insurance costing $6,000, and $11,000 to level the land and remove an unwanted building. The company paid
During 2018, Silverspring Systems, Inc., purchased two other companies for $10 million in cash. Also during 2018, Silverspring made capital expenditures of $8.6 million in cash to expand its market share. During the year, Silverspring sold its North American operations, receiving cash of $8.4
Oscar Optical Corporation provides a full line of designer eyewear to consumers. Oscar reported the following information for 2018 and 2017:Compute return on assets (ROA) for 2018 and 2017. Using the DuPont model, identify the components and state whether each improved or worsened from 2017 to
In 2018, Ambrosia Corporation reported $100 million in sales, $18 million in net income, and average total assets of $200 million. What is Ambrosia’s return on assets in 2018?
For each of the following scenarios, indicate whether a long-term asset has been impaired (Y for yes and N for no) and, if so, the amount of the loss that should be recorded. Estimated Future Cash Flows $157,000 Impaired? Amount Fair Value (Y or N) Asset Book Value of Loss a. Equipment b. Trademark
Munchies, Inc., dominates the snack-food industry with its Salty Chip brand. Assume that Munchies purchased Sweet Snacks Company for $5.4 million cash. The market value of Sweet Snacks’ assets is $10 million, and Sweet Snacks has liabilities with a market value of $7.1 million.Requirements1.
Jackson Petroleum, a giant oil company, holds reserves of oil and gas assets. At the end of 2018, assume the cost of Jackson’s oil reserves totaled $180 billion, representing 10 billion barrels of oil in the ground.1. Which depreciation method is similar to the depletion method that Jackson and
On January 1, 2017, Worldwide Manufacturing purchased a machine for $810,000 that it expected to have a useful life of four years. The company estimated that the residual value of the machine was $50,000. Worldwide Manufacturing used the machine for two years and sold it on January 1, 2019, for
Fun Town Amusement Park paid $500,000 for a concession stand. Fun Town started out depreciating the building using the straight-line method over 25 years with a residual value of zero. After using the concession stand for four years, Fun Town determines that the building will remain useful for only
Assume that on September 30, 2017, EuroAir, an international airline based in Germany, purchased a Jumbo aircraft at a cost of €45,000,000 (€ is the symbol for the euro). EuroAir expects the plane to remain useful for four years (4,000,000 miles) and to have a residual value of €6,000,000.
Using the double-declining-balance method of depreciation, calculate the following amounts for the van for each of the four years of its expected life:a. Depreciation expenseb. Accumulated depreciation balancec. Book valueGrafton Company purchased a new car for use in its business on January 1,
Using the units-of-production method of depreciation (with miles as the production unit), calculate the following amounts for the van for each of the four years of its expected life (do not round here; use three decimal places for the depreciation cost per mile):a. Depreciation expenseb.
Using the straight-line method of depreciation, calculate the following amounts for the van for each of the four years of its expected life:a. Depreciation expenseb. Accumulated depreciation balancec. Book valueGrafton Company purchased a new car for use in its business on January 1, 2017. It paid
Using the double-declining-balance method of depreciation, calculate the following amounts for the car for each of the four years of its expected life:a. Depreciation expenseb. Accumulated depreciation balancec. Book valueGrafton Company purchased a new car for use in its business on January 1,
Using the units-of-production method of depreciation (with miles as the production unit), calculate the following amounts for the car for each of the four years of its expected life:a. Depreciation expenseb. Accumulated depreciation balancec. Book valueGrafton Company purchased a new car for use in
Using the straight-line method of depreciation, calculate the following amounts for the car for each of the four years of its expected life:a. Depreciation expenseb. Accumulated depreciation balancec. Book valueGrafton Company purchased a new car for use in its business on January 1, 2017. It paid
This exercise uses the Northeast data from S7-5. Assume Northeast is trying to decide which depreciation method to use for income tax purposes. The company can choose from among the following methods: (a) straight-line, (b) units-of-production, or (c) double-declining-balance methods.1. Which
On January 1, 2017, Northeast Transportation Company purchased a used aircraft at a cost of $58,900,000. Northeast expects the plane to remain useful for five years (7,200,000 miles) and to have a residual value of $4,900,000. Northeast expects to fly the plane 750,000 miles the first year,
LimeBike, located in San Mateo, California, is a startup founded in 2017. Its mission is to make shared bicycles accessible and affordable. The company has taken the basic idea of shared bicycles and eliminated the need to return the bike to a docking station, which may not be near the cyclist’s
Identify each of the following items as a capital expenditure, an immediate expense, or neither.1. Constructed a new parking lot on leased property for $300,000.2. Paid property taxes of $75,000 for the first year a new administrative services building was occupied.3. Paid dividends of $40,000.4.
Lexington Garden Supply pays $280,000 for a group purchase of land, building, and equipment. At the time of acquisition, the land has a current market value of $124,000, the building’s current market value is $31,000, and the equipment’s current market value is $155,000. Prepare a schedule
Examine the excerpt of a footnote from Albrecht Corporation’s September 30, 2018, annual report to follow.1. What are Albrecht’s largest two categories of property and equipment as of September 30, 2018? Describe in general terms the types of expenditures included in these categories.2. What
Retrieve the 2016 Under Armour financial statements at www.sec.gov by clicking on Filings and then searching for “Under Armour” under Company Filings. When you see the list of filings for the company, select the Form 10-K for 2016. Be sure to retrieve the 2016 financial statements, not
This case will help you learn to use a company’s inventory notes. The notes are part of the financial statements. They give details that would clutter the financial statements themselves. Refer to Apple Inc.’s consolidated financial statements and related notes in Appendix A and online in the
During 2016, Coalmont, Inc., changed to the LIFO method. Suppose that during 2017, Coalmont changed back to the FIFO method. In 2018, the company switched back to LIFO again.Requirements1. What would you think of a company’s ethics if it changed accounting methods every year?2. What accounting
Jasper Corporation is nearing the end of its first year of operations. Jasper made inventory purchases of $745,000 during the year, as follows:Sales for the year are 5,000 units for $1,200,000 of revenue. Expenses other than cost of goods sold and income taxes total $200,000. The president of the
The Cheesecake Factory Incorporated (NASDAQ: CAKE) operates over 200 restaurants and two bakeries in the United States. In its two bakeries, it bakes and prepares more than 70 desserts, both for its own use in its restaurants and for sale to a wide variety of wholesalers and retailers. The
Pickering Financial Management believes that the biotechnology industry is a good investment and is considering investing in one of two companies. However, one company, BrightWorld, Inc., uses the FIFO method of inventory, and another company, BioTech, Inc., uses LIFO. Because the companies use two
Westpark Video, Inc., declared bankruptcy. The company reported these figures:Requirement1. Evaluate the trend of Westpark Video’s results of operations during 2016 through 2018. Consider the trends of sales, gross profit, and net income. Track the gross profit percentage and the rate of
Suppose Chic Fashions, a specialty retailer, had these records for evening gowns during 2018:Beginning inventory (41 @ $1,025) .................... $ 42,025Purchase in February (17 @ $1,050) ..................... 17,850Purchase in June (47 @ $1,175) ............................. 55,225Purchase in
For each of the following situations, identify the inventory method that you would use; or, given the use of a particular method, state the strategy that you would follow to accomplish your goal.a. Inventory costs are increasing, and the company prefers to report high income.b. Inventory costs have
The accounting records of Boston Home Store show these data (in millions):The shareholders are very happy with Boston’s steady increase in net income. However, auditors discovered that the ending inventory for 2016 was understated by $6 million and that the ending inventory for 2017 was
Eddie’s Convenience Stores’ income statement for the year ended December 31, 2017, and its balance sheet as of December 31, 2017, are as follows:The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2018 and expects sales and cost of goods
Ross Company, a camera store, lost some inventory in a fire on December 15. To file an insurance claim, the company must estimate its December 15 inventory using the gross profit method. For the past two years, Ross Company’s gross profit has averaged 44% of net sales. Its inventory records
Sprinkle Top, Inc., and Coffee Shop Corporation are both specialty food chains. The two companies reported these figures, in millions:Requirements1. Compute the gross margin percentage and the rate of inventory turnover for Sprinkle Top and Coffee Shop for 2018.2. Based on these statistics, which
Freshwater Trade Mart has recently had lackluster sales. The rate of inventory turnover has dropped, and the merchandise is gathering dust. At the same time, competition has forced Freshwater’s suppliers to lower the prices that Freshwater will pay when it replaces its inventory. It is now
The records of Eaton Aviation include the following accounts for inventory of aviation parts at July 31 of the current year:Requirements1. Prepare a partial income statement through gross profit under the average-cost, FIFO, and LIFO methods. Round average cost per unit to two decimal places and
SWAT Surplus began March 2018 with 100 tents that cost $10 each. During the month, the company made the following purchases at cost:The company sold 318 tents, and at March 31, the ending inventory consisted of 52 tents. The sales price of each tent was $52.Requirements1. Determine the cost of
A Swoosh Sports outlet store began December 2018 with 47 pairs of running shoes that cost the store $34 each. The sales price of these shoes was $63. During December, the store completed these inventory transactions:Requirements1. The preceding data are taken from the store’s perpetual inventory
Western Trading Company purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Western Trading ends each January 31. Assume you are dealing with a single Western Trading store in Nashville, Tennessee. The Nashville store began the year with an inventory
The accounting records of Timberlake Home Store show these data (in millions):The shareholders are very happy with Timberlake’s steady increase in net income. However, auditors discovered that the ending inventory for 2016 was understated by $5 million and that the ending inventory for 2017 was
Ricky’s Convenience Stores’ income statement for the year ended December 31, 2017, and its balance sheet as of December 31, 2017, are as follows:The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2018 and expects sales and cost of goods
Cleveland Company, a camera store, lost some inventory in a fire on October 15. To file an insurance claim, the company must estimate its October 15 inventory using the gross profit method. For the past two years, Cleveland Company’s gross profit has averaged 41% of net sales. Its inventory
Crispy Donut, Inc., and Calhoun Coffee Corporation are both specialty food chains. The two companies reported these figures, in millions:Requirements1. Compute the gross margin percentage and the rate of inventory turnover for Crispy Donut and Calhoun Coffee for 2018.2. Based on these statistics,
Anderson Trade Mart has recently had lackluster sales. The rate of inventory turnover has dropped, and the merchandise is gathering dust. At the same time, competition has forced Anderson’s suppliers to lower the prices that Anderson will pay when it replaces its inventory. It is now December 31,
The records of Atlanta Aviation include the following accounts for inventory of aviation parts at July 31 of the current year:Requirements1. Prepare a partial income statement through gross profit under the average-cost, FIFO, and LIFO methods. Round average cost per unit to two decimal places and
Navy Surplus began July 2018 with 80 stoves that cost $10 each. During the month, the company made the following purchases at cost:The company sold 250 stoves, and at July 31, the ending inventory consisted of 50 stoves. The sales price of each stove was $52.Requirements1. Determine the cost of
A Gold Medal Sports outlet store began August 2018 with 42 pairs of running shoes that cost the store $31 each. The sales price of these shoes was $63. During August, the store completed these inventory transactions:Requirements1. The preceding data are taken from the store’s perpetual inventory
Eastern Trading Company purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Eastern Trading ends each January 31. Assume you are dealing with a single Eastern Trading store in San Diego, California. The San Diego store began the year with an inventory
An error understated Power Corporation’s December 31, 2018, ending inventory by $54,000. What effect will this error have on total assets and net income for 2018?Assets Net incomea. Understate .................... Understateb. Understate ....................... No effectc. No effect
Scott Equine Supplies had the following beginning inventory, net purchases, net sales, and gross profit percentage for the first quarter of 2018:By the gross profit method, the ending inventory should bea. $75,200.b. $48,800.c. $105,200.d. $124,000. Beginning inventory, $51,000 Net sales revenue,
Roswell Corporation reported the following data:Roswell’s gross profit percentage isa. 49.2.b. 50.8.c. 56.0.d. 48.2. Freight in. .. Purchases Beginning inventory . Purchase discounts . Dividends . Purchase returns.. $ 5,000 6,000 440,000 45,000 $ 22,000 206,000 51,000 4,500 Sales revenue.. ....
A company’s sales are $550,000 and cost of goods sold is $350,000. Beginning and ending inventories are $27,000 and $38,000, respectively. How many times did the company turn its inventory over during this period?a. 10.8 timesb. 6.2 timesc. 7.4 timesd. 16.9 times
Two financial ratios that clearly distinguish a discount chain such as Walmart from a high-end retailer such as Gucci are the gross profit percentage and the rate of inventory turnover. Which set of relationships is most likely for Gucci? Gross profit percentage Inventory turnovera. Low Highb.
An error understated Golden Flash Company’s December 31, 2018, ending inventory by $27,000. What effect will this error have on net income for 2019?a. Understate itb. Have no effect on itc. Overstate it
Pineview Company ended the month of March with inventory of $26,000. Pineview expects to end April with inventory of $14,000 after selling goods with a cost of $98,000. How much inventory must Pineview purchase during April in order to accomplish these results?a. $112,000b. $110,000c. $138,000d.
The following data come from the inventory records of Albrecht Company:Net sales revenue.......................................... $623,000Beginning inventory .......................................... 65,000Ending inventory................................................ 47,000Net
The income statement for Gilmore Uniforms shows gross profit of $143,000, operating expenses of $130,000, and cost of goods sold of $219,000. What is the amount of net sales revenue?a. $362,000b. $492,000c. $273,000d. $349,000
In a period of rising prices,a. Cost of goods sold under LIFO will be less than under FIFO.b. Gross profit under FIFO will be higher than under LIFO.c. LIFO inventory will be greater than FIFO inventory.d. Net income under LIFO will be higher than under FIFO.
If The Corner Frame Shop uses the LIFO method, cost of goods sold will bea. $21,200.b. $21,240.c. $20,900.d. $22,340.
If The Corner Frame Shop uses the FIFO method, the cost of the ending inventory will bea. $21,200.b. $20,900.c. $21,240.d. $27,840.
What was Lakeside’s gross profit for January?a. $7,500b. $ – 0 –c. $1,900d. $5,600
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