At January 1, 2011, a Company Had a Net Valuation

question 37

Multiple Choice

At January 1, 2011, a company had a net valuation allowance account credit balance for investments in securities available-for-sale of $20,000. At December 31, 2011, the total cost of the relevant portfolio was $300,000, and total market value was $275,000. The entry required on December 31, 2011, would reflect a

• A) $5,000 decrease in net income.
• B) $25,000 decrease in net income.
• C) credit of $5,000 to the valuation allowance account.
• D) debit of $25,000 to the unrealized loss account.

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Definitions:

Direct Materials

Raw materials that can be directly attributed to the production of goods.

Variable Manufacturing Overhead

Costs that fluctuate with production volume, such as raw materials and direct labor.

Direct Labour Hours

The overall work hours of staff directly engaged in creating products.

Variable Manufacturing Overhead

The portion of variable overhead that is directly associated with the manufacturing process, such as indirect materials or supplies.