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| Section | Objectives |
|---|---|
| Business Decision Support | - Performance Measurement
|
| Managerial Accounting for Decision Making | - Cost Behavior
|
| Financial Accounting Fundamentals | - Financial Statements
|
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NEW QUESTION # 34
A company manufactures and sells widgets. The following information is available:
* Total fixed costs per month are $300,000
* The variable cost per widget is $50
* Each widget sells for $100
How many widgets does the company need to sell each month to break even?
Answer: C
Explanation:
The correct answer is D. 6,000 . This is a standard cost-volume-profit (CVP) and break-even question. The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit .
First, compute contribution margin per widget:
Contribution margin per unit = Selling price - Variable cost
= $100 - $50 = $50
Now apply the break-even formula:
Break-even units = Fixed costs / Contribution margin per unit
= $300,000 / $50 = 6,000 widgets
This means the company must sell 6,000 widgets each month to generate enough contribution margin to cover all fixed costs. At that point, profit is zero, which is exactly what break-even means. If it sells more than
6,000 units, it earns a profit. If it sells fewer than 6,000, it incurs a loss.
The other choices are incorrect because they do not fully cover the fixed-cost amount using the $50 contribution margin per unit. Therefore, the correct break-even sales volume is 6,000 widgets , which makes Option D correct.
NEW QUESTION # 35
What can be determined when a firm performs an external audit of a company's financial statements?
Answer: B
Explanation:
The correct answer is B. Whether a company's financial statements fairly reflect its financial position .
The purpose of an external audit is for the independent auditor to express an opinion on whether the financial statements present fairly, in all material respects , the company's financial position, results of operations, and cash flows in conformity with the applicable financial reporting framework. PCAOB auditing standards state this explicitly in the required auditor's report language.
Option A is incorrect because anyone reading the income statement can see whether the company reported a profit or loss; that alone is not the purpose of the audit. Option C is incorrect because tax liability is not what the audit opinion is primarily determining. Option D is also incorrect because an audit does not certify that the statements were prepared by a particular kind of employee such as a trained bookkeeper. Instead, the audit evaluates whether the statements are fairly presented and free of material misstatement. Therefore, the best answer is that an external audit helps determine whether the company's financial statements fairly reflect its financial position .
NEW QUESTION # 36
Which source of cash is the best indicator of a firm's viability as an ongoing concern?
Answer: B
Explanation:
The correct answer is A. Cash from operating activities . Cash generated from operating activities is the best indicator of whether a company can continue as a going concern because it reflects cash produced by the firm' s core day-to-day business operations . OpenStax explains that the operating section shows cash flows generated and used by normal business activities, while investing and financing sections relate to asset purchases/sales and raising or repaying capital. OpenStax also notes that operating cash flow helps indicate the feasibility of continuing and advancing company plans.
Option B is incorrect because financing cash flows can come from borrowing or issuing stock, which may temporarily provide cash without proving the business itself is healthy. Option C is incorrect because investing cash flows often relate to buying or selling long-term assets and do not directly show sustainable operating strength. Option D is not one of the formal statement of cash flows categories under U.S. GAAP.
For evaluating long-term viability, analysts and auditors place the greatest weight on the firm's ability to generate cash internally from operations. Therefore, Cash from operating activities is the best answer.
NEW QUESTION # 37
Which two examples represent financial statement errors?
Choose 2 answers.
Answer: C,D
Explanation:
The correct answers are A and C . A financial statement error is an unintentional misstatement in the amount, classification, presentation, or disclosure of financial statement information. PCAOB standards explain that misstatements can arise from either error or fraud , and errors are unintentional. A miscalculated payroll tax liability is a classic accounting error because it produces an incorrect liability amount without intent to deceive. Likewise, unintentionally recording unearned customer prepayments as revenue is an error in revenue recognition and financial statement classification.
Option B is not an error; it is fraud or misappropriation of assets because it involves deliberate overpayment and a kickback. PCAOB fraud guidance distinguishes intentional misconduct from accidental mistakes.
Option D is not necessarily an error merely because an auditor disagrees with management's estimate.
Allowance for uncollectible accounts is an area of judgment, and disagreement alone does not prove a financial statement error exists. Therefore, the two choices that best represent unintentional financial statement errors are A and C .
NEW QUESTION # 38
What purpose do the notes within financial statements serve to the Financial Accounting Standards Board?
Answer: B
Explanation:
The correct answer is A. Providing supplementary information as needed . Notes to financial statements are designed to give users additional information that supports, explains, and expands on the amounts shown in the main financial statements. They may include descriptions of accounting policies, contingencies, commitments, segment information, assumptions, and other disclosures necessary for fair presentation. FASB- related disclosure materials and accounting references describe notes as providing supporting or supplementary information for items presented in the statements.
Option C is partly true in a narrower sense because the notes often include a summary of significant accounting policies , but that is only one component of their broader purpose. Option B is incorrect because totals are summarized in the statements themselves, not mainly in the notes. Option D is also incorrect because the notes are not limited to financial statistics; they provide qualitative and quantitative disclosures that help users interpret the statements properly. Therefore, the best overall answer is that notes serve the purpose of providing supplementary information as needed to make the financial statements more complete, understandable, and decision-useful.
NEW QUESTION # 39
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