The Following Events All Occurred After the Balance Sheet Date

question 51

Multiple Choice

The following events all occurred after the balance sheet date (6/30/15) but prior to the auditor's report (9/10/15) . Which one would require an adjustment to the account balances as of 6/30/15?

• A) client will market a new series of equity securities ($2 million of preferred stock) on 8/1/15
• B) unused equipment on the books at 6/30/15 for $100 000 was disposed of 7/31/15 for $60 000
• C) securities costing $30 000 held for temporary investment on 6/30/15 declined in value by one-third when the market took a plunge on 8/15/15
• D) inventory valued at $100 000 on 6/30/15 was destroyed in a fire on 8/1/15

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Definitions:

Machine-Hours

A unit of measure indicating the operational time of machinery, often used in manufacturing to allocate costs based on machine usage.

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to individual units of production, calculated at the beginning of a period.

Machine-Hours

The total hours that production machinery is operated within a given period, rephrased as the aggregate operational time of production equipment.

Direct Labor-Hours

The total hours worked by employees directly involved in the production process, used as a basis for allocating labor costs to products.