Ninja BEC January 8 2016

Question 1

1. Platinum Co. has a receivable due in 30 days for 30,000 euros. The treasurer is concerned that the value of the euro relative to the dollar will drop before the payment is received. What should Platinum do to reduce this risk?

A. Buy 30,000 euros now
B. Enter into an interest rate swap contract for 30 days
C. Enter into a forward contract to sell 30,000 euros in 30 days
D. Platinum cannot effectively reduce this risk

Answer 1

Answer: C – A forward contract is an arrangement between two parties to exchange currencies at a specified exchange rate sometime in the future. This allows a company to reduce the exchange rate risk. In this situation, the Platinum Co. enters into a forward contract to sell 30,000 euros in 30 days. If the value of the euro declines in the next 30 days, the Platinum Co. will lose (exchange rate loss) on the receipt of the 30,000 euro receivable; however, it will recover that loss on the sale of the 30,000 euros based upon the forward contract at a specified exchange rate.

Question 2

2. An entity doing business on the Internet most likely could use any of the following methods to prevent unauthorized intruders from accessing proprietary information except:

A. password management.
B. data encryption.
C. digital certificates.
D. batch processing.

Answer 2

Answer: D – In batch processing, items to be processed are collected in groups to permit fast and convenient processing (processed as a group). Records of all transactions affecting a particular master file (e.g., payroll) are accumulated over a period of time (e.g., one week) and are then arranged in sequence and processed against the master file. Batch processing does not prevent unauthorized intruders from accessing information on the Internet.
The other answer choices are incorrect because passwords, encryption, and digital certificates are all methods commonly used to restrict unauthorized access to data.

Question 3

3. A department adds material at the beginning of a process and identifies defective units when the process is 40% complete. At the beginning of the period, there was no work-in-process. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. If all units in ending work-in-process were 66-2/3% complete, then ending work-in-process should be allocated as follows:

A.50% of all normal defective unit costs
B. 40% of all normal defective unit costs
C. 50% of the material costs and 40% of the conversion costs of all normal defective unit costs
D. None of the normal defective unit costs

Answer 3

Answer: A – Units are identified as defective when production is 40% complete. Since the ending work-in-process inventory was 66-2/3% complete, all of the defective units had already been identified in work-in-process as well as finished goods.
The cost of normal spoilage is spread evenly over the remaining good units. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. Therefore, the same defective unit cost is allocated to finished goods as to work-in-process, meaning that 50% of the cost is allocated to each.