AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 1211:

  The following information applies to ABC Company.

  

  Forty percent of purchases are paid for in cash at the time of purchase, and 30 percent is paid for in each of the next two months. Purchases for the previous November and December were $150,000 per month. Payroll is 10 percent of sales in the month it occurs, and operating expenses are 20 percent of the following months sales (July sales were $220,000). Interest payments were $20,000 paid quarterly in January and April. ABC's cash disbursements for the month of April were:

  A. $152,000
  B. $200,000
  C. $248,000
  D. $254,000
  D. $254,000

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  Choice "d" is correct. Cash disbursements in April would include paying for purchases made in February and March. It would also include payroll expense and operating expenses. The calculation would be: Choices "a", "b", and "c" are incorrect, per above calculations.

• Question 1212:

  Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that:

  A. Irregularities exist among the relevant account balances.
  B. Internal control activities are not operating effectively.
  C. Additional tests of details are required.
  D. The communication with those charged with governance should be revised.
  C. Additional tests of details are required.

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  Choice "c" is correct. If analytical procedures suggest unexpected relationships, the auditor would perform additional tests of details of the accounts involved. Choice "a" is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that irregularities exist in the relevant account balances, although this is a possible . Choice "b" is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that internal control activities are not operating effectively, although this is a possible . Choice "d" is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that communication with those charged with governance should be revised, although this is a possible consequence.

• Question 1213:

  When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach?

  A. Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions.
  B. Test data programs need not be tailor-made by the auditor for each client's computer applications.
  C. Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls.
  D. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results.
  D. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results.

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  Choice "d" is correct. The test data approach refers to a technique in which the client's application program is used to process a set of test data, the results of which are already known by the auditor. If the client's program is operating effectively, it should generate the same results determined by the auditor. Choice "a" is incorrect. An integrated test facility (not a test data approach) utilizes dummy accounts. For example, using an integrated test facility (ITF) approach, test data is initially commingled with live data, but coding to a dummy account allows later extraction from the system under actual operating conditions. Choice "b" is incorrect. Test data programs should be tailor-made by the auditor for each client's computer applications, to ensure that the data is in an appropriate form for that client's system, and that it includes the types of invalid conditions in which the auditor is interested. Choice "c" is incorrect. Test data contains the types of valid and invalid conditions in which the auditor is interested (it is not necessary to test all combinations of valid and invalid conditions).

• Question 1214:

  When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is:

  A. 24.0 percent.
  B. 35.3 percent.
  C. 36.0 percent.
  D. 36.7 percent.
  D. 36.7 percent.

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  Explanation Explanation/Reference:Choice "d" is correct. The formula for calculating the cost of a credit policy is: Therefore, the cost of customers taking this discount is 36.7% of the invoice price of the sale. Choices "a", "b", and "c" are incorrect, per the above answer.

• Question 1215:

  ABC Co. reported a retained earnings balance of $400,000 at December 31, 1991. In August 1992, ABC determined that insurance premiums of $60,000 for the three-year period beginning January 1, 1991, had been paid and fully expensed in 1991. ABC has a 30% income tax rate. What amount should ABC report as adjusted beginning retained earnings in its 1992 statement of retained earnings?

  A. $420,000
  B. $428,000
  C. $440,000
  D. $442,000
  B. $428,000

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  Choice "b" is correct. $428,000 net of tax.

• Question 1216:

  Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a partner commits a negligent act?

  A. All the partners.
  B. The supervisor of the negligent partner.
  C. All the partners other than the negligent partner.
  D. All the partners other than the supervisor of, and, the negligent partner.
  D. All the partners other than the supervisor of, and, the negligent partner.

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  Choice "d" is correct. LLP partners are liable only for their own negligence and the negligence of anyone who commits a wrongful act under the partner's direct control. Choices "a", "b", and "c" are incorrect, per the above.

• Question 1217:

  It is not appropriate to refer a reader of an auditor's report to a financial statement footnote for details concerning:

  A. Subsequent events.
  B. The pro forma effects of a business combination.
  C. Sale of a discontinued operation.
  D. The results of confirmation of receivables.
  D. The results of confirmation of receivables.

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  Choice "d" is correct. Details concerning the results of audit procedures (such as the results of confirmation of receivables) generally do not appear in the footnotes. Choice "a" is incorrect. Subsequent events may be discussed in an explanatory paragraph of the auditor's report, which would also refer to the related footnote. Choice "b" is incorrect. The pro forma effects of a business combination may be included in an explanatory paragraph of the auditor's report, which would also refer to the related footnote. Choice "c" is incorrect. Sale of a discontinued operation may be discussed in an explanatory paragraph of the auditor's report, which would also refer to the related footnote.

• Question 1218:

  ABC Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 1989 included the following expense and loss accounts:

  

  One-half of the rented premises is occupied by the sales department. ABC's total selling expenses for 1989 are:

  A. $480,000
  B. $400,000
  C. $370,000
  D. $360,000
  A. $480,000

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  Explanation Explanation/Reference: Note: Only one-half of rent for office space was used for sales office. Choice "a" is correct. $480,000.

• Question 1219:

  Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis financial statements:

  A. Do not include nontaxable revenues and nondeductible expenses in determining income.
  B. Include detailed information about current and deferred income tax liabilities.
  C. Contain no disclosures about capital and operating lease transactions.
  D. Recognize certain revenues and expenses in different reporting periods.
  D. Recognize certain revenues and expenses in different reporting periods.

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  Choice "d" is correct. Income tax-basis financial statements recognize events when taxable income or deductible expenses are recognized on the entity's tax return. Non-taxable income and non-deductible expenses are shown on the financial statement and included in the determination of income (and become M-1 adjustments to arrive at taxable income). Please Note: This question appeared in the releases for 1999 in FARE; however, it may also apply to OCBOA financial statements discussed in the Auditing textbook. The question did not apply well to any FARE CSO line item, so we included it here so that you could read theand learn from it.

• Question 1220:

  Which of the following statements regarding competitive advantage is not true?

  A. The two major forms of competitive advantage are product differentiation and cost leadership.
  B. If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage.
  C. Cost leadership advantage may be the best be obtained by a firm when a firm builds market share or matches the price of its rivals.
  D. Differentiation advantage may best be obtained by a firm when a firm builds market share or increases its price.
  B. If the manufacturing costs of a firm are less than those of close rivals, then the firm has a competitive market advantage.

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  Choice "b" is the proper choice, as it is not a true statement. Simply because the manufacturing costs of a firm are less than those of close rivals, this does not necessarily mean that the firm has a competitive market advantage. Only if TOTAL costs to a firm are less than those of close rivals will a firm have a competitive market advantage. Choices "a", "c", and "d" are incorrect, as they are all true statements.