AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 1091:

  The objective of performing analytical procedures in planning an audit is to identify the existence of:

  A. Unusual transactions and events.
  B. Illegal acts that went undetected because of internal control weaknesses.
  C. Related party transactions.
  D. Recorded transactions that were not properly authorized.
  A. Unusual transactions and events.

  ---

  Choice "a" is correct. The objective of performing analytical procedures during planning is to discover unusual transactions or events that may have an impact on the planning of the financial statement audit. Choice "b" is incorrect. Analytical procedures are not effective in identifying illegal acts that went undetected due to internal control weaknesses. Choice "c" is incorrect. Analytical procedures are not effective in identifying related party transactions. Choice "d" is incorrect. Analytical procedures are not effective as tests of controls to identify unauthorized transactions.

• Question 1092:

  Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards?

  A. The auditor is required to follow the guidance provided by the Standards, without exception.
  B. The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware.
  C. The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective.
  D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.
  D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

  ---

  Choice "d" is correct. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures. Choice "a" is incorrect. On rare occasions, the auditor may depart from the guidance provided by the SASs, but he or she must justify such departures. Choice "b" is incorrect. Lack of familiarity with a SAS is not a valid reason for departing from its guidance. The auditor is expected to have sufficient knowledge of the SASs to identify those that are applicable to a given audit engagement. Choice "c" is incorrect. The cost associated with following the guidance provided by a SAS is not an acceptable reason for departing from its guidance.

• Question 1093:

  On August 31, 1992, ABC Co. decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system. ABC is on a calendar year basis. The cumulative effect of the change is determined:

  A. As of January 1, 1992.
  B. As of August 31, 1992.
  C. During the eight months ending August 31, 1992, by a weighted average of the purchases.
  D. During 1992 by a weighted average of the purchases.
  A. As of January 1, 1992.

  ---

  Choice "a" is correct, as of January 1, 1992, the beginning of the year. Rule: The cumulative effect of a change in accounting principle equals the difference between retained earnings at the beginning of period of the change and what retained earnings would have been if the change was applied to all affected prior periods, assuming comparative financial statements are not presented. If comparative statements are presented, then beginning retained earnings of the earliest year presented is adjusted for the cumulative effect of the change. We are assuming, based on the answer options given, that Harvey is not presenting comparative financial statements. Choice "b" is incorrect. The cumulative effect of the change is not determined as of the date the decision is made. Choices "c" and "d" are incorrect. The cumulative effect of the change is not determined by a weighted average.

• Question 1094:

  This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment.

  Select, as the best answer for each item, the most likely source. Select only one source for each item.

  As discussed in Note 4 to the financial statements, the company experienced a net loss for the year ended July 31, 20XX, and is currently in default under substantially all of its debt agreements. In addition, on September 25, 20XX, the

  company filed a prenegotiated voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the company's ability to continue as a going concern.

  A. Practitioner's report on management's assertion about an entity's compliance with specified requirements.
  B. Auditor's communications on significant deficiencies in internal control.
  C. Audit inquiry letter to legal counsel.
  D. Lawyer's response to audit inquiry letter.
  E. Communication from those charged with governance to the auditor.
  F. Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control).
  G. Report on the application of accounting principles.
  H. Auditor's engagement letter.
  I. Letter for underwriters.
  J. Accounts receivable confirmation request. K. Request for bank cutoff statement. L. Explanatory paragraph of an auditor's report on financial statements. M. Partner's engagement review notes. N. Management representation letter. O. Successor auditor's communication with predecessor auditor. P. Predecessor auditor's communication with successor auditor.
  L

  ---

  Choice "L" is correct. When there is substantial doubt about an entity's ability to continue as a going concern, the auditor would state his or her concerns in an explanatory paragraph of the auditor's report.

• Question 1095:

  In the hierarchy of generally accepted accounting principles, APB Opinions have the same authority as AICPA:

  A. Statements of Position.
  B. Industry Audit and Accounting Guides.
  C. Issues Papers.
  D. Accounting Research Bulletins.
  D. Accounting Research Bulletins.

  ---

  Choice "d" is correct. AICPA Accounting Research Bulletins, FASB Standards, FASB Interpretations, FASB Staff Positions, FASB Statement 133 Implementation Issues, and APB Opinions and Interpretations are the most authoritative sources of generally accepted accounting principles. Choice "a" is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical Bulletins are secondary sources of generally accepted accounting principles. Choice "b" is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical Bulletins are secondary sources of generally accepted accounting principles. Choice "c" is incorrect. AICPA Issues Papers and Practice Bulletins, FASB Concepts Statements, and other authoritative pronouncements are tertiary sources for generally accepted accounting principles.

• Question 1096:

  If a nation has many rival domestic firms which are all competitive in the global marketplace for a product, which of the four major factors that Michael Porter has indicated impact the global competitive environment would allow this nation to fare better with respect to global competitive advantage?

  A. Conditions of the factors of production.
  B. Conditions of domestic demand.
  C. Related and supporting industries.
  D. Firm strategy, structure, and rivalry.
  C. Related and supporting industries.

  ---

  Choice "c" is correct. The factor of related and supporting industries deals with whether there are suppliers of material inputs that exist within a nation or whether there are rival firms who are competitive in the international environment, both of which would increase the nation's competitive advantage. Choice "a" is incorrect. If a nation has a strong set of factors of production (such as low-cost, high quality raw material inputs), that are required in a given industry, it will fare better with regard to competitive advantage. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question. Choice "b" is incorrect. The factor of conditions of domestic demand related to the nation's domestic demand for the product, which is directly related to the ability of the nation to fare better with regard to competitive advantage. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question. Choice "d" is incorrect. The factor of firm strategy, structure, and rivalry relates to the practices of a nation with respect to how the companies are managed and organized, along with the laws of the nation that regulate the formation of the companies, and how intense the rivalry is with respect to competing firms in the nation. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question.

• Question 1097:

  An auditor who wishes to capture an entity's data as transactions are processed and continuously test the entity's computerized information system most likely would use which of the following techniques?

  A. Snapshot application.
  B. Embedded audit module.
  C. Integrated data check.
  D. Test data generator.
  B. Embedded audit module.

  ---

  Choice "b" is correct. Embedded audit modules are sections of an application program code that collect transaction data for the auditor. Such modules allow the auditor to capture specific data as transactions are being processed. Choices "a", "c", and "d" are incorrect, based on the above Explanation.

• Question 1098:

  Under FASB Statement of Financial Accounting Concepts #5, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?

  A. Unrealized loss on investments in noncurrent marketable equity securities available for sale.
  B. Unrealized loss on investments in current marketable equity securities held for trading.
  C. Loss on exchange of nonmonetary assets without commercial substance.
  D. Loss on exchange of nonmonetary assets with commercial substance.
  A. Unrealized loss on investments in noncurrent marketable equity securities available for sale.

  ---

  Choice "a" is correct. Unrealized loss on investments in marketable equity securities available for sale would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles. Rule: FAC 5 defines "earnings" for a period to exclude certain cumulative accounting adjustments and other non-owner changes in equity (such as changes in market value of marketable securities available for sale) that are included in comprehensive income for a period.

• Question 1099:

  Which of the following cash transfers results in a misstatement of cash at December 31, 20X1?

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  D. Option D

  ---

  Choice "d" is correct. Since the disbursement was not recorded until January 20X2 while the receipt was recorded in December 20X1, cash will be overstated at December 31, 20X1. Choices "a" and "c" are incorrect. Both the disbursement and the receipt are recorded in 20X1, so there will be no misstatement of cash at December 31, 20X1. Choice "b" is incorrect. Both the disbursement and the receipt are recorded in 20X2, so there will be no misstatement of cash at December 31, 20X1.

• Question 1100:

  ABC Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an estimated useful life of three years. Assume for simplicity that the equipment will be fully depreciated 30, 40, and 30 percent in each of the three years, respectively. The new machine will have a $10,000 resale value at the end of its estimated useful life. The machine is expected to save the company $85,000 per year in operating expenses. ABC uses a 40 percent estimated income tax rate and a 16 percent hurdle rate to evaluate capital projects.

  Discount rates for a 16 percent rate are as follows.

  

  What is the net present value of this project?

  A. $15,842
  B. $13,278
  C. $9,432
  D. $(35,454)
  B. $13,278

  ---

  Explanation Explanation/Reference:Choice "b" is correct. $13,278 net present value.