AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 1201:

  In performing an attest engagement, a CPA typically:

  A. Supplies litigation support services.
  B. Assesses control risk at a low level.
  C. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party.
  D. Provides management consulting advice.
  C. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

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  Choice "c" is correct. In performing an attest engagement, a CPA typically issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. Choice "a" is incorrect. Supplying litigation support services is not an attest engagement because the CPA is not reporting on subject matter (or an assertion about subject matter) that is the responsibility of another party. Choice "b" is incorrect. An attest engagement may include a report on internal control; however, the assessed level of control risk may or may not be at a low level. Choice "d" is incorrect. Management consulting advice is not considered to be an attest engagement because the CPA is not reporting on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

• Question 1202:

  White, Grey, and Fox formed a limited partnership. White is the general partner and Grey and Fox are the limited partners. Each agreed to contribute $200,000. Grey and Fox each contributed $200,000 in cash while White contributed $150,000 in cash and $50,000 worth of services already rendered. After two years, the partnership is insolvent. The fair market value of the assets of the partnership is $150,000 and the liabilities total $275,000. The partners have made no withdrawals. Unless otherwise provided in the certificate of limited partnership, which of the following is correct if Fox assigns her interest in the partnership to Barr and only White consents to Barr's admission as a limited partner?

  A. Barr will not become a substituted limited partner unless Grey also consents.
  B. Barr will have the right to inspect the partnership's books.
  C. The partnership will be dissolved.
  D. Barr will become a substituted limited partner because White, as general partner, consented.
  A. Barr will not become a substituted limited partner unless Grey also consents.

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  Choice "a" is correct. In the absence of an agreement between all partners, the assignment of a partner's interest does not make the assignee a substitute partner; it merely transfers the assignor's rights to distributions to the assignee. Choice "b" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership and does not give the assignee any right to inspect the partnership's books. Choice "c" is incorrect. Absent an agreement among the partners otherwise, an assignment of an interest in a partnership is merely an assignment of the assignor's rights to receive distributions from the partnership; it does not make the assignee a new partner. Since there is no change in who is a partner, there is no dissolution. Choice "d" is incorrect. All partners must agree to make someone a partner, not just the general partner.

• Question 1203:

  An extraordinary gain should be reported as a direct increase to which of the following?

  A. Net income.
  B. Comprehensive income.
  C. Income from continuing operations, net of tax.
  D. Income from discontinued operations, net of tax.
  A. Net income.

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  Choice "a" is correct. Extraordinary items are reported as a component of net income, after income from continuing operations and discontinued operations. Choice "b" is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income as a component of net income. Choice "c" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations. Choice "d" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.

• Question 1204:

  An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the:

  A. Existence of unclaimed payroll checks held by supervisors.
  B. Early cashing of payroll checks by employees.
  C. Discovery of invalid employee I.D. numbers.
  D. Proper approval of overtime by supervisors.
  C. Discovery of invalid employee I.D. numbers.

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  Choice "c" is correct. Test data allows the auditor to determine whether adequate controls exist over data processing. Test data consists of fictitious entries or inputs that are processed through the client's computer system under the control of the auditor. The client's computerized payroll system should have adequate controls to prevent input of invalid employee ID numbers. Choice "a" is incorrect. This control does not involve the client's computer system and therefore cannot be tested using test data. Choice "b" is incorrect. This control does not involve the client's computer system and therefore cannot be tested using test data. Choice "d" is incorrect. This control does not involve the client's computer system and therefore cannot be tested using test data.

• Question 1205:

  In 1992, Anchor, Chain, and Hook created ABC Associates, a general partnership. The partners orally agreed that they would work full time for the partnership and would distribute profits based on their capital contributions. Anchor contributed $5,000; Chain $10,000; and Hook $15,000. For the year ended December 31, 1993, ABC Associates had profits of $60,000 that were distributed to the partners. During 1994, ABC Associates was operating at a loss. In September 1994, the partnership dissolved. In October 1994, Hook contracted in writing with XYZ Co. to purchase a car for the partnership. Hook had previously purchased cars from XYZ Co. for use by ABC Associates partners. ABC Associates did not honor the contract with XYZ Co., and XYZ Co. sued the partnership and the individual partners.

  A. XYZ Co. would lose a suit brought against ABC Associates because Hook, as a general partner, has no authority to bind the partnership.
  B. XYZ Co. would win a suit brought against ABC Associates because Hook's authority continues during dissolution..
  B. XYZ Co. would win a suit brought against ABC Associates because Hook's authority continues during dissolution..

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  Choice "b" is correct. A partner's authority to bind the partnership continues after dissolution to persons who have extended credit to the partnership previously and who are without notice of the dissolution. The facts state that Hook had previously purchased cars for the partnership from XYZ, and presumably the purchases were on credit. Since nothing in the facts indicates that XYZ was given notice of the dissolution, the partnership will be bound.

• Question 1206:

  In 1990, ABC Corp., a closely held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock. Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held. For this question refer to the formation of ABC Corp. and the rights and duties of its stockholders, directors, and officers. ABC Corp.'s initial bylaws ordinarily would be adopted by its:

  A. Stockholders.
  B. Officers.
  C. Directors.
  C. Directors.

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  Choice "c" is correct. Bylaws usually are adopted by the initial directors.

• Question 1207:

  Clark, CPA, compiled and properly reported on the financial statements of ABC Co., a nonissuer, for the year ended March 31, 20X1. These financial statements omitted substantially all disclosures required by generally accepted accounting principles (GAAP). ABC asked Clark to compile the statements for the year ended March 31, 20X2, and to include all GAAP disclosures for the 20X2 statements only, but otherwise present both years' financial statements in comparative form. What is Clark's responsibility concerning the proposed engagement?

  A. Clark may not report on the comparative financial statements because the 20X1 statements are not comparable to the 20X2 statements that include the GAAP disclosures.
  B. Clark may report on the comparative financial statements provided the 20X1 statements do not contain any obvious material misstatements.
  C. Clark may report on the comparative financial statements provided an explanatory paragraph is added to Clark's report on the comparative financial statements.
  D. Clark may report on the comparative financial statements provided Clark updates the report on the 20X1 statements that do not include the GAAP disclosures.
  A. Clark may not report on the comparative financial statements because the 20X1 statements are not comparable to the 20X2 statements that include the GAAP disclosures.

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  Choice "a" is correct. Compiled financial statements that omit substantially all the disclosures required by GAAP are not comparable to financial statements that do include required GAAP disclosures. Accordingly, the 20X1 statements are not comparable to the 20X2 statements and Clark cannot report on them. Choice "b" is incorrect. The lack of material misstatements does not alter the fact that the statements are not comparable and therefore Clark may not report on them. Choice "c" is incorrect. Compiled financial statements that omit substantially all of the disclosures required by GAAP are not comparable to financial statements that include such disclosures. Accordingly, Clark may not report on the comparative financial statements, even if an explanatory paragraph is added. Choice "d" is incorrect. Updating the auditor's report does not change the fact that the financial statements for the two periods are not comparable.

• Question 1208:

  Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides for:

  A. Segregation of duties of employees in the accounts payable department.
  B. Independent verification of invoices for disbursements recorded as equipment acquisitions.
  C. Investigation of variances within a formal budgeting system.
  D. Authorization by the board of directors of significant equipment acquisitions.
  C. Investigation of variances within a formal budgeting system.

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  Choice "c" is correct. Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by internal control procedures that provide for investigation of variances within a formal budgeting system. Choice "a" is incorrect. Segregation of duties of employees in the accounts payable department would not prevent the misclassification of equipment acquisitions as maintenance expense. Choice "b" is incorrect. Verifying invoices for disbursements already recorded as equipment acquisitions would not include examining invoices for disbursements recorded as maintenance expense. Choice "d" is incorrect. Since the authorization by the board of directors occurs before the disbursement is recorded, this control would not prevent any misclassification.

• Question 1209:

  Entry into monopolistic competition is:

  A. Frequent, as no obstacles exist.
  B. Difficult, with significant obstacles.
  C. Rare, as significant capital is required.
  D. Relatively easy, with only a few obstacles.
  D. Relatively easy, with only a few obstacles.

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  Choice "d" is correct. The characteristics of monopolistic competition include: ?Numerous firms with differentiated products. ?Ease of entry - few barriers. ?Firms exact some influence over price and market. ?Non-price competition is frequent and critical. Choice "a" is incorrect. Monopolistic competition has a few obstacles. A market with no obstacles is in perfect competition. Choice "b" is incorrect. Significant obstacles are characteristic of oligopoly. Choice "c" is incorrect. Significant capital requirements represent a significant barrier to entry, which is characteristic of oligopoly.

• Question 1210:

  To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is:

  A. Supported by a vendor's invoice.
  B. Stamped "paid" by the check signer.
  C. Prenumbered and accounted for.
  D. Approved for authorized purchases.
  B. Stamped "paid" by the check signer.

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  Choice "b" is correct. By stamping the voucher "paid," the check signer cancels the voucher so it cannot be resubmitted for payment. Choice "a" is incorrect. Even invoices that are supported by prenumbered sales invoices can be resubmitted for payment if they are not canceled, resulting in duplicate payments. Choice "c" is incorrect. Accounting for the sequence of prenumbered vouchers would only test whether all vouchers are present. It would not prevent a voucher from being paid twice. Choice "d" is incorrect. Proper authorization would help ensure that payments were properly authorized, but would not prevent duplicate payments.