AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 1191:

  ABC Co. is reviewing the following data relating to an energy saving investment proposal:

  

  What would be the annual savings needed to make the investment realize a 12% yield?

  A. $8,189
  B. $11,111
  C. $12,306
  D. $13,889
  C. $12,306

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  Explanation Explanation/Reference:Choice "c" is correct. The annual savings needed to make the investment realize a 12% yield is where the present value of the cash savings/inflows equals the present value of the net cash outflows. Use algebra to calculate the annual savings, as follows: Choice "a" is incorrect. The annual savings needed to make the investment realize a 12% yield is where the present value of the cash savings/inflows equal the present value of the net cash outflows. Choice "b" is incorrect. Subtract the present value of $10,000 due in 5 years at 12%, or $10,000 ?.57 = $5,700. Do not subtract the entire $10,000. Choice "d" is incorrect. Subtract the present value of the $10,000 residual value from the $50,000 cost.

• Question 1192:

  ABC, Limited Partnership, was formed by three brothers, Aaron, Barry, and Sam. Aaron is the general partner and devotes more than 60 hours per week to the business. Barry and Sam are limited partners who work for different companies

  having no relationship to the limited partnership. The partners' capital contributions are as follows: Aaron invested 20%. Barry and Sam invested 40% each. During the formation of the limited partnership, the brothers signed an agreement that

  addresses how the brothers will split profits and losses. At year-end, the limited partnership enjoyed large profits due to high demand for the business' product line.

  The profits will be divided:

  A. In proportion to each partner's capital contribution.
  B. According to the agreement.
  C. Equally.
  D. By determining by the amount of time and labor each partner devoted to the operation of the partnership.
  B. According to the agreement.

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  Choice "b" is correct. Rule: Partners in a limited partnership can agree as to how they will split profits and losses, with losses shared up to the amount of the limited partners' capital. Profits and losses are shared on the basis of percentages of capital contributions only in the absence of an agreement otherwise. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 1193:

  The primary responsibility of a bank acting as registrar of capital stock is to:

  A. Ascertain that dividends declared do not exceed the statutory amount allowable in the state of incorporation.
  B. Account for stock certificates by comparing the total shares outstanding to the total in the shareholders subsidiary ledger.
  C. Act as an independent third party between the board of directors and outside investors concerning mergers, acquisitions, and the sale of treasury stock.
  D. Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation.
  D. Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation.

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  Choice "d" is correct. Large companies often use a registrar to provide registration services and maintain the stockholder list. The primary responsibility of the registrar is to verify that stock is issued only with proper authorization. Choice "a" is incorrect. The company's board of directors bears responsibility for proper declaration of dividends, not the stock registrar. Choice "b" is incorrect. Since the company's management is responsible for maintaining accurate accounting records, a responsible company employee (not the registrar) would periodically compare the recorded number of shares outstanding (per company records) with the total in the shareholders' subsidiary ledger (per the registrar). Choice "c" is incorrect. A registrar does not have the described responsibility with respect to mergers, acquisitions, and the sale of treasury stock.

• Question 1194:

  Which of the following representations should not be included in a report on internal control related matters noted in an audit of a nonissuer?

  A. Significant deficiencies related to internal control design exist, but none is deemed to be a material weakness.
  B. There are no significant deficiencies in the design or operation of internal control.
  C. Corrective follow-up action is recommended due to the relative significance of material weaknesses discovered during the audit.
  D. The auditor's consideration of internal control would not necessarily disclose all significant deficiencies that exist.
  B. There are no significant deficiencies in the design or operation of internal control.

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  Choice "b" is correct. A report on internal control related matters noted in an audit should not state that there are no significant deficiencies in internal control, since this statement might erroneously imply that the auditor searched for such conditions. Choice "a" is incorrect. The auditor is permitted to state that no material weaknesses were identified during the audit. Typically this occurs in reports submitted to governmental authorities. Choice "c" is incorrect. The auditor may suggest that corrective follow-up action should be taken due to the relative significance of material weakness discovered. Choice "d" is incorrect. The auditor's report may state that his or her consideration of internal control would not necessarily disclose all significant deficiencies that exist.

• Question 1195:

  The basic objective of the residual income approach of performance measurement and evaluation is to have a division maximize its:

  A. Return on investment rate.
  B. Imputed interest rate charge.
  C. Cash flows in excess of a desired minimum amount.
  D. Income in excess of a desired minimum amount.
  D. Income in excess of a desired minimum amount.

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  Choice "d" is correct. Residual income is defined as income in excess of a desired minimum return. Choices "a" and "b" are incorrect, as residual income is not a "rate" of return; it is a dollar amount. Choice "c" is incorrect, as residual income is an accrual method.

• Question 1196:

  The measure most often used to compare standards of living across countries or across time is:

  A. Government spending.
  B. Real GDP.
  C. Real consumption expenditures.
  D. Real GDP per capita.
  D. Real GDP per capita.

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  Choice "d" is correct. Real GDP per capita is real GDP divided by population. Real GDP per capita is typically used to compare standards of living across countries or across time. By dividing real GDP by population, this measure adjusts for differences in the size of countries and for differences in population over time. Choice "a" is incorrect. Government spending is not a measure of the standard of living of a country. Choice "b" is incorrect. Countries with larger populations tend to have higher levels of real GDP. This however does not mean they have a higher standard of living. To adjust for differences in population, real GDP per capita is typically used to compare standards of living, not real GDP. Choice "c" is incorrect. Real consumption expenditures are only a part of real GDP and thus do not measure all economic activity. Furthermore, real consumption expenditures do not adjust for differences in population. It is therefore not used as a measure of the standard of living.

• Question 1197:

  The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whether:

  A. The information is useful for comparing a segment of one enterprise with a similar segment of another enterprise.
  B. Sufficient audit evidence has been obtained to allow the auditor to be associated with the segment information.
  C. A separate opinion on the segment information is necessary due to inconsistent application of accounting principles.
  D. The information is presented in conformity with the FASB Statement on segment information.
  D. The information is presented in conformity with the FASB Statement on segment information.

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  Choice "d" is correct. The auditor's objective is to provide a reasonable basis for concluding whether segment information is presented in conformity with GAAP. Choice "a" is incorrect. The auditor is not required to see that segment information included is comparable to other enterprises. Choice "b" is incorrect. Sufficient audit evidence must be obtained to ensure that segment information is presented in accordance with GAAP, not to allow the auditor to be associated with such information. Choice "c" is incorrect. The inclusion of segment information is a GAAP requirement, and a separate opinion is not required.

• Question 1198:

  James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is reviewing the following forecasted information for his division for next year.

  

  If the imputed interest charge is 15 percent and Webb wants to achieve a residual income target of $2 million, what will costs have to be in order to achieve the target?

  A. $10,800,000
  B. $23,620,000
  C. $25,150,000
  D. $25,690,000
  C. $25,150,000

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  Explanation Explanation/Reference:Choice "c" is correct. $25,150,000 costs to achieve residual income target of $2 million. Choices "a", "b", and "d" are incorrect, per the above calculation.

• Question 1199:

  Which of the following is most likely to cause an increase in the amount of frictional unemployment in an economy?

  A. An invention that renders an industry obsolete.
  B. A downturn in aggregate business activity.
  C. An increase in the average age of the work force.
  D. A reduction in the average age of the work force.
  D. A reduction in the average age of the work force.

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  Choice "d" is correct. Younger workers tend to move between jobs more frequently. Choice "a" is incorrect. This would lead to structural unemployment. Choice "b" is incorrect. This would lead to cyclical unemployment. Choice "c" is incorrect. Older workers tend to be voluntarily between jobs less frequently than younger workers.

• Question 1200:

  When an auditor increases the planned assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the:

  A. Extent of tests of details.
  B. Level of inherent risk.
  C. Extent of tests of controls.
  D. Level of detection risk.
  A. Extent of tests of details.

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  Choice "a" is correct. When an auditor increases the planned assessed level of control risk because certain control activities were determined to be ineffective, detection risk must be reduced accordingly. This may be accomplished by increasing the extent of tests of details. Choice "b" is incorrect. The level of inherent risk is not directly related to the planned level of control risk. Choice "c" is incorrect. The auditor performs tests of controls to evaluate the operating effectiveness of those controls. Once they have been determined to be ineffective, there would be no reason to perform further tests of those controls. Choice "d" is incorrect. The level of detection risk that the auditor could accept would decrease if the planned level of control risk increased.