Today’s question: FAR

The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of- ompletion method includes the ratio of:

A)     Total costs incurred to date to total estimated costs

B)     Total costs incurred to date to total billings to date

C)     Costs incurred in year 3 to total estimated costs

D)    Costs incurred in year 3 to total billings to date

Today’s question: BEC

If the net present value of a capital budgeting project is positive, what would it indicate?

A)   That the present value of cash outflows exceeds the present value of cash inflows.

B)   That the payback period is less than one-half of the life of the project.

C)   That the internal rate of return is equal to the discount percentage rate used in the net present value computation.

D)   That the rate of return for this project is greater than the discount percentage rate used in the net present value computation.

Correct Answer: D

Explanation: A rate of return greater than the discount percentage produces a positive net present value, just as a rate of return less than the discount percentage produces a negative one. If the present value of the cash outflows exceeds the present value of the cash inflows, the net present value would be negative. The payback period, which does not use discounted cash flows, has no mathematical relation to the net present value. If the internal rate of return is equal to the discount percentage used in the net present value computation, the net present value would be zero.

Correct Answer: B

Explanation: When referring to another auditor's work, the principal auditor must disclose the scope of the second auditor's examination in relation to the total consolidated assets of both companies.