An organization has 10,000 units of a defect item in stock, per unit, market price is $10$; production cost is
$4; and defect selling price is $5. What is the carrying amount (inventory value) of defects at your end?

• A.$4,000
• B.$0
• C.$10,000
• D.$5,000

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KW Ltd. leased equipment under a 4-year non cancelable lease properly classified as a finance learn. The lease does not transfer ownership or contain a bargain purchase option. The equipment had an estimated economic life of 5 years and an estimated residual value of US $20.000. Terms of the lease included a guarantees residual value of US $50,000. KW initially recorded the leased equipment at US $240,000 and its depreciation polity for owned assets is to use the straight-line method. Thus, the amount of depreciation that should be charged each year is:

• A.US $55,000
• B.US $47,500
• C.US $44,000
• D.US $38,000

Correct Answer: B

Depreciation should be consistent with the accounting policy for owned assets. Absent a reasonable certainty that the lessee will own the asset at the end of the lease term, it should be fully depreciated over the shorter of the useful life or the lease term. The lease does not transfer ownership or contain a bargain purchase option. Accordingly, the period of amortization should be the lease term. In accordance with the straight-line method used by KW for owned assets, the depreciable base for this finance lease is equal to the US $240,000 initially recorded minus the US $50,000 guaranteed residual value allocated equally over the 4-year lease term. Consequently, annual depreciation expense is US $47,500 [($24,00,000 - $50,000) - 4 years]. On January 1 Plantation Partners is planning to enter as the lessee into the two lease agreements described in the opposite column. Each lease is noncancelable, and Plantation does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.

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An international nonprofit organization finances medical research. The majority of its revenue and support comes from fundraising activities, investments, and specific grants from an initial sponsoring corporation. The organization has been in operation over 15 years and has a small internal audit department. The organization has just finished a major fundraising drive that raised US $500 million for the current fiscal period.
The following are selected data from recent financial statements (US dollar figures in millions): The auditor wishes to determine if the change in investment income during the current year was due to (a) changes in investment strategy, (b) changes in portfolio mix, or (c) other factors. Which of the following analytical review procedures should the auditor use?

• A.Simple linear regression that compares investment income changes over the past 5 years to determine the nature of the changes.
• B.Ratio analysis that compares changes in the investment portfolio on a monthly basis.
• C.Trend analysis that compares the changes in investment income as a percentage of total assets and of investment assets over the past 5 years.
• D.Multiple regression analysis that includes independent variables related to the nature of the investment portfolio and market conditions.

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Image processing systems have the potential to reduce the volume of paper circulated throughout an organization. To reduce the likelihood of users relying on the wrong images, management should ensure that appropriate controls exist to maintain the:

• A.Legibility of image data.
• B.Accessibility of image data.
• C.Integrity of index data.
• D.Initial sequence of index data.

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A supervisor receives a complaint from an employee who is frustrated about having to learn a new software program. The supervisor responds that the new software will enable the employee to work more efficiently and with greater accuracy. This response is an example of:

• A.Reflective listening.
• B.Empathetic listening.
• C.Dialogue.
• D.Reframing.

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