AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 1101:

  If demand is price inelastic:

  A. An increase in price will result in a decrease in total revenue.
  B. An increase in price will result in an increase the quantity demanded that is more than the increase in price.
  C. An increase in price will result in an increase in total revenue.
  D. An increase in price will have no effect on total revenue.
  C. An increase in price will result in an increase in total revenue.

  ---

  Choice "c" is correct. If demand is price inelastic, an increase in price will result in an increase in total revenue (positive relationship). Choice "b" is incorrect. When demand is price inelastic, an increase in price results in a decrease in quantity demanded that is proportionately smaller than the increase in price, thus having the result of an increase in total revenue (price multiplied by quantity). Choices "a" and "d" are incorrect, per the above statement.

• Question 1102:

  Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom's dependent. Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994 Form 1040.

  During 1994, the Moores received a $2,500 federal tax refund and a $1,250 state tax refund for 1993 overpayments. In 1993, the Moores were not subject to the alternative minimum tax and were not entitled to any credit against income tax. The Moores' 1993 adjusted gross income was $80,000 and itemized deductions were $1,450 in excess of the standard deduction. The state tax deduction for 1993 was $2,000.

  A. $0
  B. $500
  C. $900
  D. $1,000
  E. $1,250
  F. $1,300
  G. $1,500
  H. $2,000
  I. $2,500
  J. $3,000 K. $10,000 L. $25,000 M. $50,000 N. $55,000 O. $75,000
  E. $1,250

  ---

  "E" is correct. $1,250. The Moores itemized deductions in 1993 because such deductions were $1,450 in excess of the standard deduction. The amount of state taxes deducted in 1993 was $2,000, which (along with the fact that the Moores were not subject to alternative minimum tax, which may have reduced their tax benefit) indicates that the Moores received a tax benefit in 1993 from deducting the $1,250 state tax refund they received in 1994. The $1,250 is taxable in 1994.

• Question 1103:

  A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain:

  A. A statement of limitations on the use of the report.
  B. An opinion about whether management's assertion is fairly stated.
  C. Negative assurance that control risk has not been assessed.
  D. An acknowledgment of responsibility for the sufficiency of the procedures.
  A. A statement of limitations on the use of the report.

  ---

  Choice "a" is correct. The practitioner's report on agreed-upon procedures related to management's assertion about the entity's compliance with specified requirements is intended solely for the use of specified parties. Thus, the report should include a statement of limitations on the use of the report. Choice "b" is incorrect. The report is in the form of procedures and findings. Since the work performed is less in scope than an examination, the accountant disclaims any opinion. Choice "c" is incorrect. The auditor does not provide any negative assurance relative to assessment of control risk or to compliance with the specified requirements. Choice "d" is incorrect. The report contains a statement that the sufficiency of the procedures is solely the responsibility of the parties specifying the procedures and a disclaimer of responsibility on the part of the accountant.

• Question 1104:

  Doug was the sole general partner in ABC, Limited Partnership. While driving to work one morning, Doug died in a car accident. The limited partnership:

  A. Continues to exist as it was before Doug's death.
  B. Dissolves by operation of law as a result of Doug's death.
  C. Dissolves only by attaining a judicial decree.
  D. Converts to a general partnership and all former limited partners become general partners.
  B. Dissolves by operation of law as a result of Doug's death.

  ---

  Choice "b" is correct. Rule: The death of a general partner will by operation of law, dissolve the limited partnership. Because the dissolution is by operation of law, there is no requirement to attain a judicial decree. Remaining limited partners do not automatically become general partners as a result of the death of the general partner. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 1105:

  When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to:

  

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

  ---

  Choice "b" is correct. "Yes - No." Rule: A partnership is an agreement between two or more persons to carry on, as co-owners, a business for profit; partners share management and profits and losses, not gross receipts. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 1106:

  Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis would generally exclude the:

  A. Trends that will affect the entity's markets.
  B. Target product mix and production schedule to be maintained during the year.
  C. Forms of organizational structure that would best serve the entity.
  D. Best ways to invest in research, design, production, distribution, marketing, and administrative activities.
  B. Target product mix and production schedule to be maintained during the year.

  ---

  Choice "b" is correct. Target product mix and production scheduling would be operational plans. Strategy is much more general and conceptual. Choices "a", "c", and "d" are incorrect, which are parts of strategy.

• Question 1107:

  The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

  A. Observe physical counts of the inventory items.
  B. Trace the total on the inventory listing to the general ledger inventory account.
  C. Obtain a confirmation from the client indicating inventory ownership.
  D. Analytically compare the current-year inventory balance to the prior-year balance.
  A. Observe physical counts of the inventory items.

  ---

  Choice "a" is correct. The auditor's personal observation is generally one of the most reliable forms of evidence. Observing physical inventory counts provides reliable evidence that the inventory actually exists. Choice "b" is incorrect. Tracing totals from the inventory listing to the general ledger inventory account provides evidence of completeness, not existence. Choice "c" is incorrect. A confirmation from the client indicating ownership provides some evidence regarding rights and obligations, but does not provide evidence of existence. Choice "d" is incorrect. Analytical comparisons of current year to prior year inventory balances might provide some evidence regarding completeness, existence, and valuation, but this is not as reliable a procedure for verifying existence, as is the auditor's direct personal observation.

• Question 1108:

  An auditor of a nonpublic company must conduct the audit in accordance with:

  A. ASB standards. II. PCAOB standards.
  B. I.
  C. Both I and II.
  D. Either I or II, but not both.
  E. II.
  A. ASB standards. II. PCAOB standards.

  ---

  Choice "a" is correct. An auditor of a nonpublic company must conduct the audit in accordance with ASB standards. Choice "b" is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards. Choice "c" is incorrect. While an auditor is only required to conduct the audit in accordance with ASB standards, the auditor may choose to follow PCAOB standards as well. Choice "d" is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards.

• Question 1109:

  Which one of the following is most relevant to a manufacturing equipment replacement decision?

  A. Original cost of the old equipment.
  B. Disposal price of the old equipment.
  C. Gain or loss on the disposal of the old equipment.
  D. A lump-sum write-off amount from the disposal of the old equipment.
  B. Disposal price of the old equipment.

  ---

  Rule: Relevant costs are only those costs that will differ among many alternatives. Choice "b" is correct. The disposal price of the old equipment is most relevant because it is an expected future inflow that will differ among alternatives. If this old equipment is replaced, there will be a cash inflow from the sale of the old equipment. If the old equipment is kept, there will be no cash inflow from the sale of the old equipment. Choice "a" is incorrect. The original cost of the old equipment is a sunk cost and, therefore, not relevant. Choice "c" is incorrect. The gain or loss on the disposal of the old equipment is not relevant. The gain or loss is an accounting computation that combines the book value, which is always not relevant, and the disposal value, which is relevant. The result is meaningless to future decisions and, therefore, is not relevant. Choice "d" is incorrect. The book value is not relevant to future decisions because the undepreciated sunk cost of an asset will only reduce net income in the future as either depreciation expense or as a loss on disposal.

• Question 1110:

  During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about:

  A. Both enterprise performance and management performance.
  B. Management performance but not directly provide information about enterprise performance.
  C. Enterprise performance but not directly provide information about management performance.
  D. Neither enterprise performance nor management performance.
  C. Enterprise performance but not directly provide information about management performance.

  ---

  Choice "c" is correct. Financial reporting, and especially financial statements, usually cannot and do not separate management performance from enterprise performance. Financial reporting provides information about an enterprise during a period when it was under the direction of a particular management but does not directly provide information about that management's performance. SFAC 1 para. 53