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NEW QUESTION 240
All of the following are true with regard to the first-in, first-out inventory valuation method except:
- A. It values inventory close to current replacement cost.
- B. It generates the highest profit when prices are rising.
- C. It minimizes current-period income taxes.
- D. It approximates the physical flow of goods.
Answer: C
NEW QUESTION 241
The current generation of ERP software ERP II) has added such front-office functions as:
- A. Inventory control.
- B. Human resources.
- C. Purchasing.
- D. Customer service.
Answer: D
Explanation:
The current generation of ERP software EPP II) has added front-office functions.
Customer relationship management applications in ERP II extend to customer service, finance-related matters, sales, and database creation and maintenance. Integrated data are helpful in better understanding customer needs, such as product preference or location of retail outlets. Thus, the organization may be able to optimize its sales forecasts, product line, and inventory levels.
NEW QUESTION 242
A retrospective voluntary change in an accounting policy in the current period should be accounted for in comparative reports by:
- A. An adjustment directly to equity balances for the first period presented and restatement of other comparative amounts.
- B. Presentation of pro forma comparative information.
- C. Note disclosure only in the current period.
- D. A line item on the current income statement for the cumulative effect of the change.
Answer: A
Explanation:
A voluntary change in accounting policy is applied retrospectively unless it is impracticable to determine period-specific effects or the cumulative effect. Retrospective application means adjusting the opening balances of equity for the first period presented and restating other comparative amounts.
NEW QUESTION 243
An audit manager has just returned from an executive training program and has suggested that the audit department develop a mathematical model to help identify factors that may be causing changes in the cost of production. According to the manager, the model should recognize that the company currently has three separate production cost) ': enters. Which of the following approaches would best provide the analysis suggested by the audit manager?
- A. Develop a -gear ratio analysis of the cost of production compared to the cost of raw inventory across the three departments.
- B. Develop a classical variables sampling estimate of cost of production per department, with the sample stratified by the dollar value of each product produced.
- C. Develop a multiple regression analysis of production costs, including such variables as raw material inventory costs, number of employees in the department, and overtime pay.
- D. Develop a linear regression analysis relating the cost of production to the cost of goods sold.
Answer: C
Explanation:
Regression analysis extends correlation to find an equation for the linear relationship among variables. The behavior of a dependent variable, such as cost of production, is explained in terms of one or more independent variables for example, raw material costs, employees, overtime). Thus, multiple regression analysis determines functional relationships among quantitative variables.
NEW QUESTION 244
The purchase of treasury shares with an entity's surplus cash:
- A. Increases an entity's equity.
- B. Dilutes an entity's earnings per share.
- C. Increases an entity's interest coverage ratio.
- D. Increases an entity's financial leverage.
Answer: D
Explanation:
A purchase of treasury share involves a decrease in assets usually cash) and a corresponding decrease in shareholders' equity. Thus, equity is reduced and the debttoequity ratio and financial leverage increase.
NEW QUESTION 245
If the central bank of a country raises interest rates sharply, the country's currency will likely:
- A. Increase in relative value.
- B. Decrease in relative value.
- C. Remain unchanged in value.
- D. Decrease sharply in value at first and then return to its initial value.
Answer: A
Explanation:
Exchange rates fluctuate depending upon the demand for each country's currency. If a country raises its interest rates, its currency will appreciate. The demand for investment at the higher interest rates will shift the demand curare for the currency to the right. The reverse holds true for a decrease in interest rates.
NEW QUESTION 246
If a corporation holds a forward contract for the delivery of government bonds in 6 months and, during those 6 months, interest rates decline, at the end of the 6 months the value of the forward contract will have:
- A. Increased.
- B. Decreased.
- C. Remained constant.
D Any of the answers may be correct, depending on the extent of the decline in interest
rates.
Answer: A
Explanation:
Interest rate futures contracts involve risk-free bonds. When interest rates decrease over the period of a forward contract, the value of the bonds and the forward contract increase.
NEW QUESTION 247
The term "short-selling" is the:
- A. Selling of all the shares you own in an entity in anticipation that the price will decline dramatically.
- B. Betting that a stock will increase by a certain amount within a given period of time.
- C. Selling of a security that was purchased by borrowing money from a broker.
- D. Selling of a security that is not owned by the seller.
Answer: D
Explanation:
Short-selling is accomplished by borrowing securities from a broker and selling those securities. At a later time, the loan is repaid by buying securities on the open market and returning them to the broker. The seller speculates that the stock's market price will decline.
NEW QUESTION 248
Assume that the construction company recognizes US $2 million of revenue for the long-term contract in Year 1 If the company uses the percentage-of-completion method cost-to cost basis), the difference between revenue recognized to date and contract billings at the end of Year 1 will be shown on the December 31, Year 1, balance sheet as a <List A> of <List B>.
- A. Option A
- B. Option D
- C. Option B
- D. Option C
Answer: B
Explanation:
The gross amount due from to customers for contract work is an asset liability. If the amount of costs incurred plus recognized profits minus recognized loss exceeds progress billings, the entity reports an asset. If the amount of progress billings exceeds costs incurred plus recognized profits minus recognized losses, the entity reports a liability. At the end of Year 1, the company had recognized US $2,000,000 of revenue costs to date +recognized profit) and had submitted billings of US $6,000,000. Thus, the excess billings equal US $4,000,000. Because the billings exceed revenue recognized, this amount is listed as a current liability. It represents deferred revenue. Given a US $10 million fixed price and US $8.5 million of total costs, the assumption that US $2 million of revenue was recognized under the percentage-of-completion method cost-to-cost basis) necessarily includes the assumption that the stage of completion was 20%US $2 million $10 million), that recognized profit was US $300,000 [($10 million - $8.5 million) x 20%], and that costs to date were US $1 7 million$8.5 million x 20%). On January 1. a new landscaping firm, Bandit Co., acquired a fleet of vehicles, all the necessary tools and equipment, and a parking and storage facility. It began operations immediately. It is now the end of the first year of operations, and the first set of year-end financial statements are being prepared. Several decisions have to be made regarding the appropriate accounting and reporting practices for this company. Relevant information for several of these items is described in the following list of transactions and events: At year-end, the parking and storage facility that was purchased for US $150,000 has a fair value of US $250,000. The physical flow of inventory is first in, first out, and the cost of materials has risen steadily over the year. To promote sales for the coming year, maintenance contracts were sold in December at very reasonable prices, provided that the customers paid cash. On April 1, the company arranged a US $100,000 10% bank loan. Interest payments of US $5,000 are due on October 1 and April 1 of each year during the 5-year term of the loan. During the first year of operations, the company experienced a 5% bad debt rate on credit sales None of the bad debts are expected to be recovered, given that 5% i s the industry average level of bad debts. Total credit sales for the year were U $400,000. The year-end balance of accounts receivable includes uncollected overdue accounts of US $100,000. Half of the uncollected overdue amounts are estimated to be uncollectible.
NEW QUESTION 249
The bullwhip, or whiplash, effect on inventories begins when retailers face uncertain demand from consumers caused by randomness in buying habits. It can be avoided by:
- A. Changes in price that may encourage purchases in anticipation of future increases.
- B. Shortages that may lead to rationing by suppliers or manufacturers and hoarding by manufacturers or retailers.
- C. Sharing of information and coordination among the organizations in the supply chain.
- D. The need to purchase or manufacture goods in cost-efficient batches.
Answer: C
Explanation:
Sharing information about sales, inventory, pricing, advertising campaigns, and sales forecasts by all functions and organizations in the supply chain moderates demand uncertainty for all parties. The desired results are (1) minimization of inventories held by suppliers, manufacturers, and retailers; (2) avoidance of stock outs; (3) fewer rush orders; and (4) production as needed by retailers.
NEW QUESTION 250
Data access security related to applications may be enforced through all of the following except:
- A. Security functions provided by a database management system.
- B. User identification and authentication functions incorporated in the application.
- C. Utility software functions.
- D. User identification and authentication functions in access control software.
Answer: C
Explanation:
Utility programs perform routine functions e.g.. sorting and copying), are available to all users, and are promptly available for many different applications. Utility programs are one of the more serious weaknesses in data access security because some can bypass normal access controls.
NEW QUESTION 251
According to IIA guidance, which of the following is a typical risk associated with the tender process and contracting stage of an organization's IT outsourcing life cycle?
- A. There is a lack of alignment to organizational strategies.
- B. The process is not sustained and is not optimized as planned.
- C. The operational quality is less than projected.
- D. There is increased potential for loss of assets.
Answer: D
NEW QUESTION 252
The correct equation for calculating the approximate percentage cost, on an annual basis, of not taking trade discounts is
- A. Option A
- B. Option D
- C. Option B
- D. Option C
Answer: A
Explanation:
The first term of the formula represents the periodic cost of the trade
discount, calculated as the cost per unit of trade credit discount %) divided by the funds made available by not taking the discount 100 - discount %). The second term represents the number of times per year this cost is incurred. The multiple of these terms is the approximate annual percentage cost of not taking the trade discount. A precise formula would incorporate the effects of compounding when calculating the annual cost.
NEW QUESTION 253
In most countries <List A> taxes tend to be <List B> with respect to income
- A. Option D
- B. Option B
- C. Option A
- D. Option C
Answer: B
Explanation:
Property taxes tend to be regressive. Taxpayers with lower incomes must pay a higher portion of their incomes for necessities, such as housing.
NEW QUESTION 254
If the organization employs an activity-based costing system, the cost per unit for the product described for the coming year will be:
- A. US $ 6.08
- B. US $ 6.21
- C. US $ 6.00
- D. US $ 6.30
Answer: D
Explanation:
Materials handling cost per part is US $.12 7720,000 + 6,000,000), cost per setup is US $420 $315,000 - 750), machining cost per hour is US $18 $540.000 - 30.000), and quality cost per batch is US 700 $225,000 - 500). Hence, total manufacturing hued applied is US $22,920 [ 5 parts per unit) x 20,000 units x $.12) + 4 batches x 2 setups per batch x $420 + 4 batches x 80 machine hours per batch x $18 + 4 batches $450)]. The total unit cost is US $6.2'.z.16 [$5-15 prime cost + $22,920 - 20.000 units) overhead].
NEW QUESTION 255
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