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Wiley CPAexcel Exam Review 2014 Study Guide, Financial Accounting and Reporting by O. Ray Whittington

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Multiple-Choice Answers and Explanations

Answers

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Explanations

1. (d) Baer Food’s year 1 revenues should include net sales revenue ($187,000), interest revenue ($10,200), and gain on sale of equipment ($4,700), for a total of $201,900. Discontinued operations (loss of $12,400) and the extraordinary gain ($1,500) are both special items that should be reported as separate components of income, after income from continuing operations. Therefore, these items should not be included in the revenues section of the income statement (which is placed before income from continuing operations).

2. (a) To directly compute cost of goods manufactured (CGM), the formula is

Beginning work in process
+ Direct materials used
+ Direct labor
+ Factory overhead
Ending work in process
Cost of goods manufactured

However, none of these elements are given in this problem, so CGM must be computed indirectly, using the cost of sales formula

Beginning finished goods
$400,000
+ Cost of goods manufactured + CGM
Ending finished goods 360,000
Cost of sales
$240,000

Solving for the missing amount, CGM is $200,000.

3. (a) All of the revenues, gains, expenses, and losses given in this problem are components of income from continuing operations. Income before income taxes is $180,000, as computed below.

Revenues ($575,000 + $25,000) $600,000
Expenses and losses ($240,000 + $70,000 ...

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