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NEW QUESTION 47
Lewis Farms inc, is a large grower of vegetables in Northern California. During a year in which there is no drought the firm earns S3 million from its produce In a year with a partial drought, earnings are $1 million and if there is a severe drought, the firm has zero earnings Based on many years of weather data, in 50% of the years there was no drought in 30% of the years there was a partial drought, and a severe drought occurred 20% of the time. Lewis Farms has an opportunity to purchase an insurance policy that would pay Lewis $2 million in the event of a severe drought $1 million in the case of a partial drought, and nothing in the event there is no drought ignoring taxes, the maximum premium that Lewis would be willing to pay for the policy is

  • A. $500,000.
  • B. $700,000.
  • C. $1, 200, 000.
  • D. $1, 500, 000.

Answer: A

 

NEW QUESTION 48
Edward Pane is an external auditor who is seeking an understanding of the cash receipts process at his new client Pane decides to use a flowchart to analyze the operations for efficiency and control. Which one of the following statements is true with respect to the decision to use a flowchart for this purpose?

  • A. Pane should not have selected a flowchart as it is better suited to help with compliance testing of existing controls
  • B. Pane should not use a flowchart as it is used primarily after the risks have been identified
  • C. Pane properly selected the flowchart as it will help to depict the process and identify any missing or inadequate controls
  • D. Pane property selected the flowchart as a tool to match each of the risks to the corresponding primary control

Answer: C

 

NEW QUESTION 49
A building materials retailer uses a LIFO method of valuing its inventory. The company has just introduced a new product. The following is the activity for the first month of this new product.
* Purchase of 3,000 units on the 2nd of the month at $5.00.
* Purchase of 6,000 units on the 12th of the month at $4.80.
* Purchase of 2,000 units on the 31st of the month at $5 60.
* Sales of the product were 4,000 units on the 20th of the month.
Using the periodic method, the ending value of the inventory would be

  • A. $35, 800.
  • B. $35,200.
  • C. $34,200.
  • D. $35,000.

Answer: B

 

NEW QUESTION 50
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