Correct Answer: C

Explanation: The cost of normal spoilage is a product cost which should be absorbed by the good units produced and included in the recorded cost of both work-in-process and finished goods inventories. The cost of abnormal spoilage ($9,000) is a period cost and should be expensed in the current period.

Today's question: AUD

Baker, CPA, was engaged to review the financial statements of Hall Company, a nonpublic entity. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as a going concern. The principal conditions and events that caused the substantial doubt have been fully disclosed in the notes to Hall's financial statements. Which of the following statements best describes Baker's reporting responsibility concerning this matter?

A)     Baker is not required to modify the accountant's review report.

B)     Baker is not permitted to modify the accountant's review report.

C)     Baker should issue an accountant's compilation report instead of a review report.

D)    Baker should express a qualified opinion in the accountant's review report.

Correct Answer: A

Explanation: An accountant's review report must be modified for departures from GAAP and/or inadequate disclosure only. The going concern problem is adequately disclosed in the financial statements; therefore no modification of the accountant's review report is necessary. The accountant may modify his review report but again it is not necessary to do so.

Today's question: FAR

A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal:

A)     The current liability shown for the lease at the end of year 1

B)      The current liability shown for the lease at the end of year 2

C)      The reduction of the lease obligation in year 1

D)     One-tenth of the original lease liability