AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 171:

  ABC Corp. wants to acquire the entire business of XYZ Corp. Which of the following methods of business combination will best satisfy ABC's objectives without requiring the approval of the shareholders of either corporation?

  A. A merger of XYZ into ABC, whereby XYZ shareholders receive cash or ABC shares.
  B. A sale of all the assets of XYZ, outside the regular course of business, to ABC, for cash.
  C. An acquisition of all the shares of XYZ through a compulsory share exchange for ABC shares.
  D. A cash tender offer, whereby ABC acquires at least 90% of XYZ's shares, followed by a short-form merger of XYZ into ABC.
  D. A cash tender offer, whereby ABC acquires at least 90% of XYZ's shares, followed by a short-form merger of XYZ into ABC.

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  Choice "d" is correct. A parent corporation owning 90% or more of a subsidiary may merge the subsidiary (short form merger) into the parent without the approval of the shareholders of either corporation or the approval of the subsidiary's board. Choices "a", "b", and "c" all require at least one of the corporations to follow the general procedure for fundamental corporate changes (i.e., board resolution notice, approval by majority shares, and filing).

• Question 172:

  The understanding with a client of an auditor's contractual obligation ordinarily is set forth in the:

  A. Management letter.
  B. Scope paragraph of the auditor's report.
  C. Engagement letter.
  D. Introductory paragraph of the auditor's report.
  C. Engagement letter.

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  Choice "c" is correct. An engagement letter, which is a presumptively mandatory requirement, sets forth the scope and nature of an auditor's contractual obligation to a client. Choice "a" is incorrect. A management letter (also known as a letter of recommendations, or a constructive services letter) is usually delivered by the auditor at the end of the audit. It identifies areas of weakness and provides recommended solutions. Choices "b" and "d" are incorrect. The scope and introductory paragraphs of the auditor's report do provide some information regarding the work performed by the auditor, but they do not express the auditor's understanding with the client as completely as does an engagement letter.

• Question 173:

  Which of the following items does not pertain to the control environment?

  A. Management's philosophy and operating style.
  B. Participation of those charged with governance.
  C. The accounting records.
  D. Personnel policies and practices.
  C. The accounting records.

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  Choice "c" is correct. The accounting records pertain to the information and communication system, not to the control environment. Choices "a", "b", and "d" are incorrect, as management's philosophy and operating style, participation of those charged with governance, and personnel policies and practices are all part of the control environment.

• Question 174:

  At December 30, 20X3, ABC Co. had cash of $200,000, a current ratio of 1.5:1 and a quick ratio of .5:1. On December 31, 20X3, all cash was used to reduce accounts payable. How did these cash payments affect the ratios?

  

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

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  Choice "a" is correct. The current ratio equals current assets divided by current liabilities. Since the current assets exceed the current liabilities (as evidenced by a current ratio of 1.5:1), when each is decreased by the same amount, there will be a greater percentage reduction of the current liabilities. Thus, the ratio will increase since the current assets are now proportionately larger than the current liabilities. The quick ratio equals quick assets (including cash) divided by current liabilities. Since the quick assets are less than the current liabilities (as evidenced by a quick ratio of .5:1), when each is decreased by the same amount, the percentage decrease of the quick assets will be greater than that of the current liabilities. Thus, the ratio will decrease since the quick assets are now proportionately smaller than the current liabilities. Choices "b", "c", and "d" are incorrect, per the above .

• Question 175:

  Which of the following is not a type of major strategic framework that has proven useful for value chain analysis?

  A. Core competencies analysis.
  B. Customer preference analysis.
  C. Industry structure analysis.
  D. Segmentation analysis.
  B. Customer preference analysis.

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  Choice "b" is correct. Customer preference analysis is not a major strategic framework that has been proven to be useful for value chain analysis. Choices "a", "c", and "d" are incorrect, as the three major types of strategic frameworks that have been proven to be useful for value chain analysis are industry structure analysis, core competencies analysis, and segmentation analysis.

• Question 176:

  An auditor may achieve audit objectives related to particular assertions by:

  A. Performing analytical procedures.
  B. Adhering to a system of quality control.
  C. Preparing audit documentation.
  D. Increasing the level of detection risk.
  A. Performing analytical procedures.

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  Choice "a" is correct. The auditor relies on substantive tests to achieve audit objectives related to particular assertions. Analytical procedures are one type of substantive procedure. Choice "b" is incorrect. CPA firms performing audits are required to adhere to a system of quality control, but adhering to such a system does not directly help the firm achieve specific audit objectives. Choice "c" is incorrect. Audit documentation is used to record the results of audit procedures that have been performed to achieve audit objectives. Mere preparation of audit documentation does not achieve audit objectives. Choice "d" is incorrect. Increasing the level of detection risk does not enable the auditor to achieve audit objectives related to a particular assertion.

• Question 177:

  Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:

  A. Market concentration.
  B. Entry barriers.
  C. Exclusionary practices.
  D. Collusion.
  B. Entry barriers.

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  Choice "b" is correct. Patents are an example of entry barriers. Patents prevent other rival firms (without patents) from entering the market and consequently, are a form of entry barriers. Patents can be "process- related" or "product-related." Choices "a", "c", and "d" are incorrect, per above Explanation.

• Question 178:

  Which of the following statements describes the same characteristic for both an S corporation and a C corporation?

  A. Both corporations can have more than 100 shareholders.
  B. Both corporations have the disadvantage of double taxation.
  C. Shareholders can contribute property into a corporation without being taxed.
  D. Shareholders can be either citizens of the United States or foreign countries.
  C. Shareholders can contribute property into a corporation without being taxed.

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  Choice "c" is correct. Either entity's shareholders may contribute property to the corporations without being taxed and may contribute such property as an exchange for stock as appraised by the directors. Choice "a" is incorrect. An S corporation may not have more than 100 shareholders, although a C corporation may have as many shareholders as desired. Choice "b" is incorrect. Only the C corporation is subject to the double taxation disadvantage. Choice "d" is incorrect. Only an S corporation is prohibited from having foreign country shareholders.

• Question 179:

  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. The ABC Associates oral partnership agreement was valid.
  B. The ABC Associates oral partnership agreement was invalid because the partnership lasted for more than one year.
  A. The ABC Associates oral partnership agreement was valid.

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  Choice "a" is correct. A partnership agreement does not have to be in writing to be valid. If the partners want to enforce an agreement to be partners for more than one year, that agreement must be in writing, but merely having the partnership last for more than one year does not make an oral partnership agreement invalid.

• Question 180:

  ABC Corp. is incorporated in State A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by ABC requires that ABC obtain a certificate of authority to do business in State B?

  A. Maintaining bank accounts in State B.
  B. Collecting corporate debts in State B.
  C. Hiring employees who are residents of state B.
  D. Maintaining an office in State B to conduct intrastate business.
  D. Maintaining an office in State B to conduct intrastate business.

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  Choice "d" is correct. A domestic corporation is one created under the laws of a given state. A foreign corporation is a corporation created under the laws of another state. A foreign corporation must obtain a certificate of authority from each state in which it does intrastate business. Choices "a", "b", and "c" are incorrect because maintaining a bank account, collecting debts, and hiring employees who live within a state are not considered to be "doing business" within the state.