65. Howard Lumber Company mistakenly classified as an expense a product cost that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:
A. product costs were overstated.
B. management bonuses were overstated.
C. the company’s income statement portrayed a more favorable position than actually existed.
D. the company’s net income was understated.
66. Assuming a company’s inventory increased during the period, which of the following misclassifications increases net income?
A. Recording administrative salaries as a product cost
B. Recording depreciation on production equipment as an expense
C. Expensing raw material costs instead of including them in inventory
D. B and C
67. During her first year with the company, Ann mistakenly accumulated some of the company’s period costs in ending inventory. Which of the following indicates how this error affects the company’s financial statements assuming number of units produced exceeded number of units sold during the period?
A. Cash flows from operations are understated.
B. Gross margin is unaffected.
C. Net income is understated.
D. Inventory is overstated.
68. If a company misclassifies a general, selling and administrative cost as a product cost in a period when production exceeds sales:
A. net income will be overstated.
B. total assets will be understated.
C. gross margin will be understated.
D. Both A and C.
69. Which of the following is not a reason management might be tempted to classify costs as assets rather than expensing them during periods in which production exceeds sales?
A. The company’s bank may be more likely to extend financing to the firm.
B. Income taxes will be lower.
C. Net income will be higher.
D. Management bonuses may be higher.
70. Certified Management Accountants (CMA) must complete a specified number of continuing professional education credits each reporting period. Which of the four standards of ethical conduct issued by the Institute of Management Accountants likely motivated this requirement?
A. Competence
B. Confidentiality
C. Integrity
D. Objectivity
71. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
A. Competence
B. Confidentiality
C. Integrity
D. Professionalism
72. As a Certified Management Accountant, Donna is bound by the standards of ethical conduct issued by the Institute of Management Accountants. Her company currently produces a component used in manufacturing several of the firm’s products. In a report evaluating the desirability of buying the component instead, Donna compared the expected purchase price of the component to the cost of materials contained in the component. Select the correct statement from the following:
A. Donna may have violated the confidentiality standard if she provided any confidential information about the firm’s costs to outside vendors.
B. Donna may have violated the competence standard because her report was incomplete in that it failed to consider the other costs required to manufacture the component in-house.
C. Donna may have violated the objectivity standard because she failed to disclose fully all relevant information that could influence this outsourcing decision.
D. All of these are correct.
73. As a Certified Management Accountant, Sheila is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Sheila learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Sheila could be in violation of the:
A. competence standard.
B. confidentiality standard.
C. integrity standard.
D. objectivity standard.
74. As a Certified Management Accountant, Paul is bound by the standards of ethical conduct issued by the Institute of Management Accountants. According to the standards, Paul has a responsibility to:
A. inform subordinates that they should protect confidential information.
B. inform the federal enforcement authorities if he discovers that someone in the firm has used confidential information for illegal purposes.
C. monitor the activities of subordinates to assure that confidentiality is maintained.
D. A and C
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