34) On January 1, 2014, Maywood Inc. Work- in- Process Inventory account had a b

Question

34) On January 1, 2014, Maywood Inc. Work- in- Process Inventory account had a balance of $30,000. During 2014, $58,000 of direct materials was placed into production. Manufacturing wages incurred amounted to $84,000, of which $66,000 were for direct labor. Manufacturing overhead is allocated on the basis of 120% of direct labor cost. Actual manufacturing overhead was $90,000. jobs costing $220,400 were completed during 2014. What is the December 31, 2014 balance of Work-in- Process Inventory? A) $6,000 B) $12,800 C) $34,800 D) $16,800

Explanation / Answer

Firm-specific credit risk refers to the likelihood that specific individual assets may deteriorate in quality, while systematic credit risk involves macroeconomic factors that may increase the default risk of all firms in the economy. Thus, if S&P lowers its rating on IBM stock and if an investor is holding only this particular stock, she may face significant losses as a result of this downgrading. However, portfolio theory in finance has shown that firm-specific credit risk can be diversified away if a portfolio of well-diversified stocks is held. Similarly, if an FI holds well-diversified assets, the FI will face only systematic credit risk that will be affected by the general condition of the economy. The risks specific to any one customer will not be a significant portion of the FIs overall credit risk.

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