BEC - 18

Question 1

Local area networks (LAN)

Answer 1

Privately owned networks within a single building or campus of up to a few miles in size.

Question 2

Metropolitan area network (MAN)

Answer 2

A larger version of a LAN. For example, it might include a group of nearby offices within a city.

Question 3

Wide area networks (WAN)

Answer 3

Networks that span a large geographical area, often a country or continent. It is composed of a collection of computers and other hardware and software for running user programs.

Question 4

How would the use of indirect materials be recorded?

Answer 4

the use of indirect materials would be recorded by a credit to stores control (i.e., inventory of direct and indirect materials) and a debit to manufacturing overhead (MOH) control. Debiting MOH control increases the balance of this account.

As actual overhead costs are incurred, they are debited to the factory overhead account

Question 5

Stock dividends

Answer 5

Stock dividends are payments to existing stockholders of a dividend in the form of the firm’s own stock. As an example, a 10% stock dividend would involve the issuance of 10% more shares to each stockholder. Such dividends are designed to signal to investors that the firm is performing well, but it does not require the firm to distribute cash.

a stock dividend involves a ratable distribution of additional shares to common stockholders.

Question 6

Stock splits

Answer 6

Stock splits are similar to stock dividends but they are generally designed to reduce the stock’s price to a target level that will attract more investors. As an example, a 2-for-1 stock split doubles the number of shares outstanding and it would be expected that the price of the stock would drop approximately in half.

Question 7

Fair value hedge

Answer 7

A hedge of the changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk.

Question 8

Cash flow hedge

Answer 8

A hedge of the variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.

Question 9

Foreign currency hedges

Answer 9

(1) A fair value hedge of an unrecognized firm commitment or a recognized asset or liability valued in a foreign currency (a foreign currency fair value hedge).
(2) A cash flow hedge of a forecasted transaction, an unrecognized firm commitment, the forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability, or a forecasted intercompany transaction (a foreign currency cash flow hedge).
(3) A hedge of a net investment in a foreign operation.

Question 10

According to COSO, internal control is

Answer 10

A process, effected by the entity’s board of directors, management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to

• operations
• reporting
• compliance.

Question 11

High-Low Method

Answer 11

The high-low method separates a mixed cost into its variable and fixed components. The initial step in the high-low method utilizes a formula to find the variable rate. The formula used in developing the variable rate is

Cost at High Point - Cost at Low Point / High Activity Point - Low Activity Point = Variable Rate

Question 12

A manufacturing company employs a process cost system. The company’s product passes through both Department 1 and Department 2 in order to be completed. Conversion costs are incurred uniformly throughout the process in Department 2.; The direct material is added in Department 2 when conversion is 80% complete. This direct material is a preservative that does not change the volume. Spoiled units are discovered at the final inspection and are recognized then for costing purposes. The physical flow of units for the current month is presented below.

Beginning work in process in Department 2
(90% complete with respect to conversion costs) 14,000
Transferred in from Department 1 76,000
Completed and transferred to finished goods 80,000
Spoiled units—all normal 1,500
Ending work in process in Department 2
(60% complete with respect to conversion costs) 8,500
If the manufacturing company uses the weighted-average method, the equivalent units for direct materials in Department 2 for the current month would be

67,500
80,000
81,500
90,000

Answer 12

$81,500.

This is the correct calculation for direct material equivalent units.

Supporting Calculations	 	 
 	Physical schedule	 
Units to account for:	 	 
Beginning WIP	14,000	 
Trans-in Dept. 1	76,000	 
Total units to account for	90,000	 

Units accounted for:	 	 
Units completed (80,000)	 	 
From beginning WIP (90%)	14,000	 
From current production	66,000	 
(80,000 – 14,000)	 	 
Total units completed	80,000	80,000
Spoiled	  1,500	   1,500
Ending WIP (60%)	  8,500	             
Total units accounted for	90,000	81,500