Examination

Lower the Debt Equity ratio

What is an engagement letter?

The Kingdom of Windemere decided to construct several large windmills to generate electrical power. The
construction was financed through a general residential property tax levy for the next ten years. Utility
revenues are intended to offset all expenses associated with the windmills. The land for the windmills
was donated to the city by a local farmer. The land from the farmer should be reported in which fund
type?

Corbet Co. purchased a copyright near the beginning of the current year from an author for $20,000.
The legal life of the copyright is equivalent to the life of the author plus 50 years. Corbet expects to
sell the book for five years. What amount should Corbet report as amortization expense related to the
copyright at the end of the current year?

Pine Co. purchased land for $450,000 as a factory site. An existing building on the site was razed
before construction began. Additional information is as follows:
Cost of razing old building $60,000
Title insurance and legal fees to purchase land $30,000
Architect's fees $95,000
New building construction cost $1,850,000
What amount should Pine capitalize as the cost of the completed factory building?

Ultra Co. uses a periodic inventory system. The following are inventory transactions for the month of
January:
1/1 Beginning inventory 20,000 units at $13
1/20 Purchase 30,000 units at $15
1/23 Purchase 40,000 units at $17
1/31 Sales at $20 per unit 50,000 units
Ultra uses the LIFO method to determine the value of its inventory. What amount should Ultra report as
cost of goods sold on its income statement for the month of January?

Zokro, a nongovernmental not-for-profit organization, uses the indirect method to prepare its
statement of cash flows. In determining its net cash provided (used) by operating activities, Sokro
must add back which of the following to the change in net assets?

The primary purpose of a not-for-profit organization's statement of activities is to provide relevant information to its:

Ace Co. issued 1,000 shares of its $10 par value common stock for $15 per share in cash. How
should this transaction be reported in Ace's statement of cash flows for the year of issuance?

Accrual accounting involves accruals and deferrals. Which of the following best describes accruals
and deferrals?

An issuer's board of directors would ordinarily participate in each of the following activities, except

Which of the following is a major difference between the just-in-time (JIT) and traditional approaches
to manufacturing?

Star Co. is a retail store specializing in contemporary furniture. The following information is taken from
Star's June budget:
Sales $540,000
Cost of goods sold 300,000
Merchandise inventory–June 1 150,000
Merchandise inventory–June 30 180,000
Accounts payable for purchases–June 1 85,000
Accounts payable for purchases–June 30 75,000
What amount should Star budget for cash disbursements for June purchases?

Spark Co. buys cordless phones for $125 each and sells them for $200 each. Spark pays a sales
commission of $25 per phone sold and monthly fixed costs are $3,000. Assuming Spark desired a
profit of 10% of sales, how many units must Spark sell?

What is an opportunity cost?

The expected selling price for a new product is $19.00. Management's goal is to obtain a 20%
contribution margin on all sales. If the new product has variable selling and distribution costs of $3.00
per unit, what is the product's target variable manufacturing cost?

What is a selling price?

A 20% target contribution margin is set for Duct, which is a new product with the following unit costs:
Manufacturing costs

Variable $12
Fixed 8

Selling & admin. Costs

Variable $3
Fixed 5

What is Duct's target selling price?

Which of the following is an element of a CPA firm's quality control policies and procedures applicable
to the firm's accounting and auditing practice?

The purpose of establishing quality control policies and procedures for deciding whether to accept or
continue a client relationship is to