Category: Accounting

1. The student government claims that 75%of all students favor an increase in student fees to buy indoor potted plants for the classrooms. A random sample of 9 students produced 2 in favor of the project.

What is the probability that 2 or fewer in the sample will favor the project, assuming the student government’s claim is correct? (Use 3 decimal places.)

2. It is estimated that 75%of a grapefruit crop is good; the other 25% have rotten centers that cannot be detected unless the grapefruit are cut open. The grapefruit are sold in sacks of 9. Let r be the number of good grapefruit in a sack.
   (c) What is the expected number of good grapefruit in a sack? (Round your answer to one decimal place)
   grapefruit(d) What is the standard deviation of the r probability distribution? (Round your answer to two decimal places)
   grapefruit

 

3. A large tank of fish from a hatchery is being delivered to a lake. The hatchery claims that the mean length of fish in the tank is 15 inches, and the standard deviation is 4 A random sample of 36fish is taken from the tank. Let x be the mean sample length of these fish. What is the probability that x is within 0.5 inch of the claimed population mean? (Round your answer to four decimal places)

 

 

 

4. Future Electronics wants to place a guarantee on the players so that no more than 10%fail during the guarantee period. Because the laser pickup is the part most likely to wear out first, the guarantee period will be based on the life of the laser beam device. How many playing hours should the guarantee cover? (Round your answer down to the nearest hour)
   hr

 

5. Assume that IQ scores are normally distributed, with a standard deviation of 17points and a mean of 100 If 70 people are chosen at random, what is the probability that the sample mean of IQ scores will not differ from the population mean by more than 2 points? (Round your answer to four decimal places)

 

What happens if we want several confidence intervals to hold at the same time (concurrently)? Do we still have the same level of confidence we had for each individual interval?

6. Suppose we have two independent random variables x₁and x₂ with respective population means μ₁ and μ₂. Let us say that we use sample data to construct two 80% confidence intervals.

Confidence Interval	Confidence Level
A1 < μ1 < B1	0.80
A2 < μ2 < B2	0.80

Now, what is the probability that both intervals hold together? Use methods of Section 5.2 to show that

P(A₁ < μ₁ < B₁ and A₂ < μ₂ < B₂) = 0.64.

Hint: We are combining independent events.

P(A₁ < μ₁ < B₁ and A₂ < μ₂ < B₂) = P(A₁ < μ₁ < B₁) – P(A₂ < μ₁ < B₂)

P(A₁ < μ₁ < B₁ and A₂ < μ₂ < B₂) = P(A₁ < μ₁ < B₁) + P(A₂ < μ₁ < B₂)

P(A₁ < μ₁ < B₁ and A₂ < μ₂ < B₂) = P(A₁ < μ₁ < B₁) · P(A₂ < μ₁ < B₂)

P(A₁ < μ₁ < B₁ and A₂ < μ₂ < B₂) = P(A₁ < μ₁ < B₁) / P(A₂ < μ₁ < B₂)
If the confidence is 64% that both intervals hold together, explain why the risk that at least one interval does not hold (i.e., fails) must be 36%.

P(at least one interval fails to capture μ_i) = P(both intervals capture their μ_i) + 1

P(at least one interval fails to capture μ_i) = 1 – P(both intervals capture their μ_i)

P(at least one interval fails to capture μ_i) = P(both intervals capture their μ_i) – 1

P(at least one interval fails to capture μ_i) = 1 + P(both intervals capture their μ_i)
(b) Suppose we want both intervals to hold with 75% confidence (i.e., only 25% risk level). How much confidence c should each interval have to achieve this combined level of confidence? (Assume that each interval has the same confidence level c.)

Hint:	P(A1 < μ1 < B1 and A2 < μ2 < B2) = 0.75
	P(A1 < μ1 < B1 ✕ A2 < μ2 < B2) = 0.75
	c ✕ c = 0.75

Now solve for c. (Use 3 decimal places.)

(c) If we want both intervals to hold at the 90% level of confidence, then the individual intervals must hold at a higher level of confidence. Write a brief but detailed explanation of how this could be of importance in a large, complex engineering design such as a rocket booster or a spacecraft.

 

7. Three-circle, red-on-white is one distinctive pattern painted on ceramic vessels of the Anasazi period found at an archaeological site. At one excavation, a sample of 167potsherds indicated that 66were of the three-circle, red-on-white pattern.

(a) Find a point estimate p̂ for the proportion of all ceramic potsherds at this site that are of the three-circle, red-on-white pattern. (Round your answer to four decimal places)

(b) Compute a 95% confidence interval for the population proportion p of all ceramic potsherds with this distinctive pattern found at the site. (Round your answers to three decimal places)

lower limit
upper limit

 

 

 

7. A research group conducted an extensive survey of 3122wage and salaried workers on issues ranging from relationships with their bosses to household chores. The data were gathered through hour-long telephone interviews with a nationally representative sample. In response to the question, “What does success mean to you?” 1497 responded, “Personal satisfaction from doing a good job.” Let p be the population proportion of all wage and salaried workers who would respond the same way to the stated question. How large a sample is needed if we wish to be 95% confident that the sample percentage of those equating success with personal satisfaction is within 6% of the population percentage? (Hint: Use p ≈ 0.48 as a preliminary estimate. Round your answer up to the nearest whole number)
   workers

 

8. A research group conducted an extensive survey of 2955wage and salaried workers on issues ranging from relationships with their bosses to household chores. The data were gathered through hour-long telephone interviews with a nationally representative sample. In response to the question, “What does success mean to you?” 1478 responded, “Personal satisfaction from doing a good job.” Let p be the population proportion of all wage and salaried workers who would respond the same way to the stated question. Find a 90% confidence interval for p. (Round your answers to three decimal places.)

lower limit
upper limit

 

9. A machine in the student lounge dispenses coffee. The average cup of coffee is supposed to contain 7.0 ounces. A random sample ofeight cups of coffee from this machine shows the average content to be 26 ounces with a standard deviation of 0.70 ounce. Do you think that the machine has slipped out of adjustment and that the average amount of coffee per cup is different from 7 ounces? Use a 5% level of significance.

 

What is the value of the sample test statistic? (Round your answer to three decimal places.)(c) Find the P-value. (Round your answer to four decimal places.)

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis? Are the data statistically significant at level α?(Answer this correctly, the dotted answer is wrong)

At the α = 0.05 level, we reject the null hypothesis and conclude the data are statistically significant.

At the α = 0.05 level, we reject the null hypothesis and conclude the data are not statistically significant.

At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are statistically significant.

At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.

 

10. A hospital reported that the normal death rate for patients with extensive burns (more than 40% of skin area) has been significantly reduced by the use of new fluid plasma compresses. Before the new treatment, the mortality rate for extensive burn patients was about 60%. Using the new compresses, the hospital found that only 41of 88 patients with extensive burns died. Use a 1% level of significance to test the claim that the mortality rate has dropped.

 

(a) What is the level of significance?

What is the value of the sample test statistic? (Round your answer to two decimal places)(c) Find the P-value. (Round your answer to four decimal places)

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis? Are the data statistically significant at level α?

At the α = 0.01 level, we reject the null hypothesis and conclude the data are statistically significant.

At the α = 0.01 level, we reject the null hypothesis and conclude the data are not statistically significant.

At the α = 0.01 level, we fail to reject the null hypothesis and conclude the data are statistically significant.

At the α = 0.01 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.

James was born on 1 July 1940. He is UK resident and UK domiciled.
He is married to Jess, who had no income in 2014-15, (apart from letting income).
He had the following income for 2014-15.
1. A UK state retirement pension of £150 per week.
2. A pension from his former employer of £25,000 a year.
3. Rental income from letting furnished rooms in the family home to a tenant. The letting of rooms started on 6 April 2014. The rooms let represent 40% of the total of the property.
(The tenant pays a total annual rent of £15,000 and there are allowable expenses of £2,000 in 2014-15 for the property)
4. Investment income from his £20,000 holding of 10% government loan stocks.
(Interest payments were due on 31 May 2014 and 30 November 2014 but James sold the loan stock on 30 October 2014 and received interest to the date of sale. Interest was paid gross and is taxable).

The family home was purchased by James and Jess in 1991, they have always lived there and the property is
owned jointly by James and Jess. They share the rental income from letting rooms in the property equally.

Jess and James plan to sell the house in the future and move to a smaller home. The date of sale is not yet known.

Required:
Explain:
• the basis of the income tax computation for James in 2014-15, you are not required tocalculate his income tax liability but you may include a calculation of his taxable income.

• You are not required to consider the income tax position of Jess.

• The capital gains tax consequences of a decision to sell their home, no calculations are required and you can assume that the Capital Gains Tax rules in force for 2014-15 will continue to apply in the future.
Task 2.(around 100 words)
James has a brother, Fred, who runs his own business. His business is expanding and he plans to take on employee(s) in the tax year 2015-16. He has no other employees.
He will either take on one full time employee in which case the annual salary would be £25,000 (gross) or two part time employees each earning £12,700 (gross).

Required:
Ignoring any employment law issues, advise Fred regarding the total costs of employing either one full time employee or two part-time employees.

 

Task 3 (around 900 words)
You are required to produce a brief summary of the tax implications of occupational pension schemes which may be available to employees of a company, self-employed persons or non-working individuals.
You should confine your summary to the tax position of pension schemes as it applied for the tax year 2014-15.
Credit will be given for straightforward presentation of the complex issues associated with pensions.

You should consider (as a minimum):
• The types of scheme which may be available.
• Whether you think it is justifiable to give tax relief to pension schemes.
• How tax relief is given for the schemes.
• How much may be contributed to schemes in a tax year.
You are NOT required to consider the recent changes to the way in which pension benefits and savings may be paid out to pensioners.

Traditional overhead apportionment and absorption systems were developed decades ago when most companies manufactured a narrow range of products and direct materials and labour were the dominant factory costs. Overhead costs were relatively small and the distortions arising from inappropriate overhead allocations were not significant.

Today companies produce a wide range of products; direct labour represents only a small fraction of total costs, and overheads are of considerable importance. Therefore, traditional absorption costing which includes many arbitrary apportionments does not provide an accurate indication of the resources consumed by each product or service.

Activity Based Costing (ABC) systems developed during the 1980’s to address the inherent limitations in traditional costing systems.

See Drury- Management and Cost Accounting 9th Ed. 2015 (Chapters 3 and 11) Do not overly rely on this text.
Write a paper addressing the following…

(a) Outline the historical development of the traditional system of overhead allocation and the changing manufacturing and production environment which gave rise to the emergence of activity based costing in the 1980’s. (10 marks)
(b) Outline the principles and benefits of ABC and the factors which would need to be addressed in order to implement it successfully in an organisation.
(20 marks)
(c) Despite its undoubted benefits in terms of more accurate overhead allocation and product costing and its establishment in many Irish firms, its uptake has not been universal. Discuss any evidence you have found regarding its rate of use in Ireland and globally and outline the reasons for its success or otherwise. (20 marks)

(d) As a result of your research required to complete part (a), (b) and (c) above, give your opinion as to whether you believe the traditional system of overhead allocation has a future, clearly explaining your answer. (10 marks)

use as reference only that book: Principles of Auditing & Other Assurance Services 20th Edition

9.37Multiple Choice Questions
Select the best answer for each of the following questions. Explain the reasons for your selection.
a. Which of the following is an element of sampling risk?
(1) Choosing an audit procedure that is inconsistent with the audit objective.
(2) Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement.
(3) Failing to detect an error on a document that has been inspected by an auditor.
(4) Failing to perform audit procedures that are required by the sampling plan
b. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:
(1) Efficiency of the audit.
(2) Effectiveness of the audit.
(3) Selection of the sample.
(4) Audit quality controls.
c. Which of the following statistical sampling techniques is least desirable for use by the auditors?
(1) Random number table selection.
(2) Block selection.
(3) Systematic selection.
(4) Random number generator selection.
d. The auditors’ primary objective in selecting a sample of items from an audit population is to obtain:
(1) A random sample.
(2) A stratified sample.
(3) A representative sample.
(4) A large sample.
e. Discovery sampling is particularly effective when:
(1) There are a large number of errors in the population.
(2) The auditors are looking for critical deviations that are not expected to be frequent in number.
(3) The auditors know where deviations are likely to occur.
(4) The population is large in size.
f. The auditors are using unstratified mean-per-unit sampling to audit accounts receivable as they did in the prior year. Which of the following changes in characteristics or specifications would result in a larger required sample size this year than that required in the prior year?
(1) Larger variance in the dollar value of accounts.
(2) Smaller population size.
(3) Larger tolerable misstatement.
(4) Higher risk of incorrect acceptance.
g. which of the following sampling techniques is typically used for tests of controls?
(1) Mean-per-unit sampling.
(2) Difference sampling.
(3) Attribute sampling.
(4) Probability-proportional-to-size sampling.
h. Which of the following is accurate regarding tolerable misstatement?
(1) Tolerable misstatement is directly related to materiality.
(2) Tolerable misstatement cannot be determined until the sample results are evaluated.
(3) Tolerable misstatement does not affect sample size.
(4) Tolerable misstatement is a measure of reliability of the sample.
i. In which of the following circumstances is it least likely that tests of controls will be performed?
(1) The expected deviation rate exceeds the tolerable deviation rate.
(2) The planned assessed level of control risk is at a level slightly below the maximum.
(3) The risk of assessing control risk too low is less than the expected deviation rate.
(4) The tolerable deviation rate exceeds the risk of assessing control risk too low.
j. An auditor needs to estimate the average highway weight of tractor-trailer trucks using a state’s highway system. Which estimation method is most appropriate?
(1) Mean per unit.
(2) Difference.
(3) Ratio.
(4) Probability proportional to size.

10.46 During the audit of Sunset Building Supply, you are given the following year-end bank reconciliation prepared by the client:
Sunset Building supply
Bank Reconciliation
December 31
Balance per 12/31 bank statement 48734
Add: Deposit in Transit 4467
53201
Less check out standing 20758
Balance per ledger, 12/31 32443
According to the client’s accounting records, checks totaling $31,482 were issued between January 1 and January 14 of the following year. You have obtained a cutoff bank statement dated January 14 containing paid checks amounting to $50,440. Of the checks outstanding at December 31, checks totaling $3,600 were not returned in the cutoff statement, and of those issued per the accounting records in January, checks totaling $8,200 were not returned.
Required:
a. Prepare a working paper comparing (1) the total of all checks returned by the bank or still outstanding with (2) the total per the client’s records of checks outstanding at December 31 plus checks issued from January 1–14.
b. Suggest four possible explanations for the situation disclosed in your working paper. State what action you would take in each case, including any adjusting entry you would propose.
11.25You have been assigned to the audit of Processing Solutions, Inc., a privately held corporation that develops and sells computer systems. The systems are sold under one- to five-year contracts that provide for a fixed price for licensing, delivery, and setup of the systems and maintenance and technical support for the life of the contract. Your review of the working papers reveals that premature revenue recognition is a risk that must be addressed in the audit.
Required:
a. Describe the criteria from SEC Staff Accounting Bulletin No. 104 that must be met to recognize revenue under generally accepted accounting principles.
b. Describe two techniques that management of Processing Solutions might use to overstate revenue.
c. For the two techniques identified in (b), describe an auditing procedure that might be employed by the auditors to detect the overstatement of revenue.

The Securities and Exchange Commission (SEC) regulates public companies. The SEC has found that some of these companies have violated GAAP by using creative accounting practices to mislead investors and creditors regarding the health of their company.

Use the Internet or Strayer Library to research a recent accounting scandal within the last five (5) years where the SEC accused public companies of accounting irregularities.

Write a three to four (3-4) page paper in which you:

1. Analyze the audit report that the CPA firm issued. Ascertain the legal liability to third parties who relied on financial statements under both common and federal securities laws. Justify your response.
2. Speculate on which statement of generally acceptable auditing standards (GAAS) that the company violated in performing the audit.
3. Compare the responsibility of both management and the auditor for financial reporting, and give your opinion as to which party should have the greater burden. Defend your position.
4. Analyze the sanctions available under SOX, and recommend the key action(s) that the PCAOB should take in order to hold management or the audit firm accountable for the accounting irregularities. Provide a rationale for your response.
5. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

: Indirect Method

During 2014, Cupello Corporation has a net income of $144,000. Included on its income statement were depreciation expense of $16,000 and amortization expense of $1,800. During the year, Accounts Receivable decreased by $8,200, Inventories increased by $5,400, Prepaid Expenses decreased by $1,000, Accounts Payable decreased by $14,000 and Accrued Liabilities decreased by $1,700. Use the indirect method to determine net cash flows from operating activities.

SE4

Cash Flows from investing activities and noncash transaction

During 2014, Fargo Company purchased land for $375,000. It paid $125,000 in cash and signed a $250,000 mortgage for the rest. The company also sold for $95,000 cash a building that originally cost $90,000 on which it had $70,000 of accumulated depreciation, making a gain of $75,000. Prepare the cash flows investing activities section and the schedule of noncash investing and financing transactions of the statement of cash flows.

SE5

During 2014, North Dakota Company issued $1,000,000 in long term bonds at 96, repaid $150,000 of bonds at face value, paid interest of $80,000, and paid dividends of $50,000. Prepare the cash flows from the financing activities section of the statement of cash flows.

SE7

Cash Generating Efficiency Ratios and Free Cash Flow

In 2014, Melvin Corporation had year-end assets of $1,100,000 sales of $1,580,000, net income of $180,000 net cash flows from operating activities of $360,000, purchases of plant assets of $240,000 and sales of plant assets of $40,000, and it paid dividends of $80,000. In 2014, year-end assets were $1,000,000. Calculate the cash-generating efficiency ratios of cash flow yield, cash flows to sales, and cash flows to assets. Also calculate free cash flow.

SE4

Horizontal Analysis

Vision, Inc.’s comparative income statements follow. Compute the amount and percentage changes for the income for the income statements, and comment on the changes from 2013 to 2014

Net Sales                 2014        $360,000          2013       $290,000

Cost of goods sold                       224,000                      176,000

Gross margin                             $136,000                    $114,000

Operating expenses                    80,000                        60,000

Operating income                     $56,000                      $54,000

Interest expense                       14,000                           16,000

Income before income taxes   $42,000                         $44,000

Income taxes expense                14,000                         16,000

Net income                                  $28,000                            $28,000

Earnings per share                      $2.80                               $2.80

SE5

Vertical Analysis

Vision Inc. comparative balance sheets follow Prepare common size statements and comment on the changes from 2013 to 2014

Current assets            Assets                   2014                          $48,000         2013      $40,000

Property, plant, and equipment (net)                                     260,000                       200,000

Total assets                                                                                  $308,000                    $240,000

Current liabilities                                     2014                             $36,000        2013     $44,000

Long term liabilities                                                                     180,000                      120,000

Stockholder’s equity                                                                    92,000                        76,000

Total liabilities and stockholder’s equity                                   $308,000                    $240,000

SE6

Using the informative for Vision Inc in the SE4 and SE5, compute the current ratio, receivables turnover, days’ sales uncollected, inventory turnover days inventory on hand, payables turnover days payable, and financing period for 2013 and 2014. Inventories were $8,000 in 2012, $10,000 in 2013 and $14,000 in 2014. Accounts receivable were $12,000 in 2012, $16,000 in 2013, and $20,000 in 2014. Accounts payable were $18,000 in 2012, $20,000 in 2013 and $24,000 in 2014. The company has no marketable securities or prepaid assets. Comment on the results.

“Accounting Methods and Inventories” Please respond to the following:

• Create a corporate policy designed to minimize inventory shrinkage related to theft, stocking errors, shipping errors, etc., indicating how the policy will be enforced and procedures that may need to be implemented.
• Inventory control requires constant attention. Propose a set of guidelines that reflect the necessary monitoring controls for three distinct types of business (e.g., a shoe retailer, a physician’s office, and a food vending truck) to minimize loss and waste. Indicate how each control will minimize risk of inventory loss.

The following trial balance of Flip Corp. at December 31, year 1, has been adjusted except for incometax expense.

Account	Debit	Credit
Cash	$600,000
Accounts Receivable, net	3,500,000
Cost in excess of billings on long-ter contracts	1,600,000
Billings in excess of cost on long-term   contracts		$700,000
Prepaid taxes	450,000	n
Property, plant, and equipment, net	1,480,000
Notes Payable, noncurrent		1,620,000
Common Stock		750,000
Additional Paid In Capital		2000,000
Retained Earnings – unappropriated		900,000
Retained Earnings – restricted for Notes Payable		160,000
Earning from long-term contracts		6,680,000
Cost and Expenses	5,180,000	________
Totals	$12,810,000	$12,810,000

 

Other financial data for the year ended December 31, year 1, are Flip uses the percentage-of-completion method to account for long- term construction contracts for financial statement and income tax purposes. All receivables on these contracts areconsidered to be collectible within twelve months.

 

During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Flip has notrecordedincome tax expense. There were no temporary or permanent differences, and Flip’stax rate is 30%.

In Flip’s December 31, year 1 balance sheet, what amount should be reported as total noncurrent liabilities?

 

Question 1 options:

$2,480,000

$1,780,000

$1,620,000

$2,320,000

 

Question 2 (1 point)

The following trial balance of Flip Corp. at December 31, year 1, has been adjusted except for incometax expense.

Account	Debit	Credit
Cash	$600,000
Accounts Receivable, net	3,500,000
Cost in excess of billings on long-ter contracts	1,600,000
Billings in excess of cost on long-term   contracts		$700,000
Prepaid taxes	450,000
Property, plant, and equipment, net	1,480,000
Notes Payable, noncurrent		1,620,000
Common Stock		750,000
Additional Paid In Capital		2000,000
Retained Earnings – unappropriated		900,000
Retained Earnings – restricted for Notes Payable		160,000
Earning from long-term contracts		6,680,000
Cost and Expenses	5,180,000	________
Totals	$12,810,000	$12,810,000

Other financial data for the year ended December 31, year 1, are

Flip uses the percentage-of-completion method to account for long-term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be  collectible within twelve months.

 

During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Flip has not recorded income tax expense. There were no temporary or permanent differences, and Flip’stax rate is 30%. In Flip’s December 31, year 1 balance sheet, what amount should be reported as total current assets?

 

$6,150,000

$5,700,000

$5,450,000

$5,000,000

 

Question 3 (1 point)

Flip, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock andborrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to2,000, and operating costs and expenses totaled $64,000.On December 15^stdeclared a $3,000 cash dividend, payable to stockholders on January 15 year 2. No additional activities affected owners’ equity in year 1. Flip’s liabilities increased to $120,000 by December 31, year 1. On Flip’s December 31, year 1 balance sheet, total assets should  be reported at current assets.

$885,000

$882,000 $

878,000

$875,000

 

Question 4 (1 point)

When preparing a draft of its year 1 balance sheet, Flip, Inc. reported net assets totaling $875,000. Includedin the asset section of the balance sheet were the following:

Treasury Stock of Flip, Inc at cost, which approximates market value   on December 31	$24,000
Idle machinery	11,200
Cash surrender value of life insurance on corporate executives	13,700
Allowance for decline in market value of noncurrent equity investments	8,400

 

At what amount should Flip’s net assets be reported in the December 31, year 1 balance sheet?

$850,100

$834,500

$851,000

$842,600

 

Question 5 (1 point)

In analyzing a companyfinancial statements, which financial statement would a potential investor primarily use to assess the company’s liquidity and financial flexibility?

 

Balance sheet

Income statement

Statement of cash flows

Statement of retained earnings

 

Question 6 (1 point)

Flip Co. acquired 100%  of FlopCorp. prior to year 2. During year 2, the individual companies included intheir financial statements the following.

	Flip	Flop
Officers’ salaries	$   75,000	$50,000
Officers’ expenses	20,000	10,000
Loans to officers	125,000	50,000
Intercompany sales	150,000	—

What amount should be reported as related-party disclosures in the notes to flip’syear 2 consolidated financial statements.

$330,000

$175,000

$150,000

$155,000

 

Question 7 (1 point)

Flop Co. has entered into a joint venture with an affiliate to secure access to additional inventory. Under thejoint venture agreement, Flop will purchase the output of the venture at prices negotiated on an arm’s-length basis. Which of the following is(are) required to be disclosed about the related-party transaction?

1. Theamount due to the affiliate at the balance sheet  date.
2. Thedollar amount of the purchases during the year.

I only. II only.

Both I and II.

Neither I nor II.

 

Question 8 (1 point)

What is the purpose of information presented in notes to the financial statements?

To correct improper presentation in the financial statements.

To present management’s responses to auditor comments.

To provide disclosures required by generally accepted accounting principles.

To provide recognition of amounts not included in the totals of the financial statements.

 

Question 9 (1 point)

Which of the following information should be included in Flop, Inc.’s year 1 summary of significant accounting policies?

Business component year 1 sales are Alpha $1M, Beta $2M, and Charlie $3M.

Property, plant, and equipment is recorded at cost with depreciation computed principally by the straight-line method.

Future common share dividends are expected to approximate 60% of earnings.

During year 1, the Delta component was sold.

 

Question 10 (1 point)

Which of the following information should be disclosed in the summary of significant accounting policies?

Guarantees of indebtedness of others.

Criteria for determining which investments are treated as cash equivalents.

Refinancing of debt subsequent to the balance sheet date.

Adequacy of pension plan assets relative to vested benefits.

 

Question 11 (1 point)

Flop Corp. prepares its financial statements for its fiscal year ending December 31, year 1. Flopestimates that its product warranty liability is $28,000 at December 31, year 1. On February 12, year 2, before the financial statements were issued, Flop received information about a product defect that willrequire a recall of all units sold in year 1. It is expected the product recall will cost an additional $40,000 in warranty repairs. What should Flop present in its December 31, year 1 financial statements?

 

A footnote disclosure listing the estimated amount of $40,000 in warranty repairs and an

explanation of the recall.

An estimated warranty liability of $68,000.

No disclosure is necessary.

A footnote disclosure explaining the product recall.

 

Question 12 (1 point)

Flop Corp. has a fiscal year-end  of December 31^styear 1. On that date, Flop reported total assets of$600,000. On February 1, year 2 beforethe year 1 financial statements were issued, Floplost $250,000 ofinventory due to a fire. The inventory was a total loss and was uninsured. How should Flop present thisinformation in its December 31, year 1 financial statements?

 

should disclose the loss in a footnote to its year 1 financial statements.

Flop should report an allowance for lost inventory in its year 1 balance sheet.

Flop should not report the loss

Flop should report an extraordinary loss in its year 1 income statement.

 

Question 13 (1 point)

The fair value of an asset should be based upon

The replacement cost of an asset.

The price that would be received to sell the asset at the measurement date under current market conditions.

The price that would be paid to acquire the asset.

The original cost of the asset plus an adjustment for obsolescence.

 

Question 14 (1 point)

Which of the following describes a principal market for establishing fair value of an asset?

 

The market that has the greatest volume and level of activity for the asset.

Any broker or dealer market that buys or sells the asset.

The market in which the amount received would be maximized.

The most observable market in which the price of the asset is minimized.

 

Question 15 (1 point)

Which of the following is true for valuing an asset to fair value?

 

The price should be adjusted for transportation costs to transport the asset to its principal market.

The fair value price is based upon an entry price to purchase the asset.

The fair value of the asset should be adjusted for costs to sell.

The price of the asset should be adjusted for transaction costs.

 

Question 16 (1 point)

Which of the following would meet the qualifications as market participants in determining fair value?

 

A subsidiary of the reporting unit interested in purchasing assets similar to those being valued.

An independent entity that is knowledgeable about the asset.

A liquidation market in which sellers are compelled to sell.

A broker or dealer that wishes to establish a new market for the asset.

 

Question 17 (1 point)

The fair value of an asset at initial recognition is

The price paid to transfer or sell the asset.

The price paid to acquire the asset.

The price paid to acquire the asset less transaction costs.

The book value of the asset acquired.

 

Question 18 (1 point)

Which of the following is not a valuation technique used in fair value estimates?

 

Market approach.

Cost approach.

Residual value approach.

Income approach.

 

Question 19 (1 point)

The market approach valuation technique for measuring fair value requires which of the following?

The weighted-average of the present value of future cash flows.

The price to replace the service capacity of the asset.

Present value of future cash flows.

Prices and other relevant information of transactions from identical or comparable assets.

 

Question 20 (1 point)

A change in valuation techniques used to measure fair value should be reported as

A change in accounting principle with retrospective restatement.

An extraordinary item on the current year’s income statement.

An error correction with restatement of the financial statements of previous periods.

A change in accounting estimate reported on a prospective basis.

 

Question 21 (1 point)

Which of the following are observable inputs used for fair value measurements?

1. Bankprime rate.
2. Defaultrates on loans.

III. Financial forecasts.

 

I and III only.

I, II and III.

I only.

I and II only.

 

Question 22 (1 point)

Which of the following best describes the content of the SEC Form 10-Q?

Quarterly audited financial information and other information about the company.

Quarterly reviewed financial information and other information about the company.

Annual audited financial information and nonfinancial information about the company.

Disclosure of material events that affect the company.

 

Question 23 (1 point)

A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on form 10-Q. The company operates in an industry that is  notsubject to seasonal fluctuationsthat could have a significant impact on its financial condition. In additional to the most recent quarter-end, forwhich of the following periods is thecompany required to present balance sheets on Form 10-Q?

The end of the preceding fiscal year and the end of the prior two fiscal years.

The end of the preceding fiscal year.

The end of the corresponding fiscal quarter of the preceding fiscal year.

The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the precedingfiscal years.

 

Question 24 (1 point)

A company is an accelerated filer that is required to file Form 10-kwith the United States Securitiesand Exchange Commission (SEC). What isthe maximum number of days after the company’s fiscalyear-end that the company has to file Form 10-K with the SEC? 75 days. 120 days. 90 days. 60 days.

 

• Use the Internet to research the annual report of at least one (1) merchandising company. Determine which costing method (Last In First Out [LIFO], First In First Out [FIFO], or weighted average cost) that is used to record inventory by your selected company.
• Identify the three (3) primary advantages and three (3) primary disadvantages of using the costing method (LIFO, FIFO, and weighted average) that is used to record inventory.
• Provide support for your response.