AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 181:

  Which of the following provisions must a for-profit corporation include in its articles of incorporation to obtain a corporate charter?

  A. Provision for the authorization of voting stock. II. Name of the corporation.
  B. I only.
  C. II only.
  D. Both I and II.
  E. Neither I nor II.
  C. II only.

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  Choice "c" is correct. Both I and II. Rule: In order to obtain a corporate charter, a for-profit corporation must include in its articles of incorporation the name of the corporation and a provision for the authorization of voting stock. In addition, the articles of incorporation must include the names of the incorporators and the name and address of the registered agent. Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 182:

  The following information pertains to ABC Corp. and its divisions for the year ended December 31, 1988:

  

  ABC and all of its divisions are engaged solely in manufacturing operations. ABC has a reportable segment if that segment's revenue exceeds:

  A. $264,000
  B. $260,000
  C. $204,000
  D. $200,000
  B. $260,000

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  Explanation Explanation/Reference:Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales): Rule: To be significant enough to report on, a segment must be at least 10% of: 1. Combined revenues (whether intersegment or unaffiliated customers), or 2. Operating income, or 3. Identifiable assets.

• Question 183:

  Managers are often engaged in decision-making. There are numerous logical steps to reach a decision. The step least likely to used by a manager for decision-making would be:

  A. Obtaining information.
  B. Establishment of a strategic vision.
  C. Selecting alternatives.
  D. Identifying alternative courses of action.
  B. Establishment of a strategic vision.

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  Choice "b" is correct. Establishing a strategic vision is not normally included as part of the logical steps to reach a decision. Although decision-making techniques are incorporated as part of establishing a strategic vision and consideration of strategic issues is important, the process of deriving the vision is not considered part of the decision-making process. Choice "a" is incorrect. Obtaining information as a basis for selecting between alternatives is generally viewed as a critical part of decision-making. Choice "c" is incorrect. Selecting alternatives is a specific decision-making action that is generally included as one of the steps identified in decision-making. Choice "d" is incorrect. Identifying alternative courses of action from which to choose is a decision making process that is generally included as one of the steps identified in decision-making.

• Question 184:

  An advantage of the net present value method over the internal rate of return model in discounted cash flow analysis is that the net present value method:

  A. Computes a desired rate of return for capital projects.
  B. Can be used when there is no constant rate of return required for each year of the project.
  C. Uses a discount rate that equates the discounted cash inflows with the outflows.
  D. Uses discounted cash flows whereas the internal rate of return model does not.
  B. Can be used when there is no constant rate of return required for each year of the project.

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  Choice "b" is correct. When using the net present value method of capital budgeting, different hurdle rates can be used for each year of the project. Choice "a" is incorrect. The desired rate of return for capital projects is established by management. Choice "c" is incorrect. The internal rate of return determines the discount rate that will equate the discounted cash inflows with the outflows, thus resulting in no gain or loss (breakeven). Choice "d" is incorrect. Both the net present value method and the internal rate of return model are discounted cash flow methods.

• Question 185:

  In which stage of supply chain management will management move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service?

  A. Cross-functional teams.
  B. Integrated enterprise.
  C. Extended supply chain.
  D. Supply chain communities.
  B. Integrated enterprise.

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  Choice "b" is correct. In the integrated enterprise stage of supply chain management, the firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service. Choice "a" is incorrect. In the cross-functional teams stage of supply chain management, the firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and the focus will be on customer service. Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks.

• Question 186:

  The discount rate set by the Federal Reserve is the:

  A. Rate that commercial banks charge for loans to each other.
  B. Rate that commercial banks charge for loans to the general public.
  C. Rate that the central bank charges for loans to commercial banks.
  D. Ratio of a bank's reserves to its demand deposits.
  C. Rate that the central bank charges for loans to commercial banks.

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  Choice "c" is correct. The discount rate refers to the rate established by the Federal Reserve for shortterm (often overnight) loans the Fed makes to member banks. Choice "a" is incorrect. The discount rate is the rate the Federal Reserve charges. Choice "b" is incorrect per above . Choice "d" is incorrect. This would be the bank's reserve ratio - not the discount rate.

• Question 187:

  Juan is a limited partner in ABC, Limited Partnership. Juan visited XYZ, Inc., a local supplier of dog food claiming to be a "partner" in the partnership and negotiated a distribution contract between the supplier and limited partnership on behalf

  of the partnership.

  As a result of these actions, Juan:

  A. Has limited liability as a limited partner in reference to all creditors.
  B. Has limited liability as a limited partner to all creditors except XYZ, Inc.
  C. Has full personal liability to all creditors.
  D. None of the above.
  B. Has limited liability as a limited partner to all creditors except XYZ, Inc.

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  Choice "b" is correct. Rule: A limited partner will be considered a general partner with full personal liability only to those that the limited partner transacts with as if he were a general partner. Limited partners have no right to participate in management, such as negotiating contracts on behalf of the limited partnership. The limited partner will retain his status and limited liability to all others that the limited partner has not transacted with on behalf of the partnership. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 188:

  Which of the following decreases stockholder equity?

  A. Investments by owners.
  B. Distributions to owners.
  C. Issuance of stock.
  D. Acquisition of assets in a cash transaction.
  B. Distributions to owners.

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  Choice "b" is correct. Distributions to owners, typically in the form of dividends, will serve to reduce stockholders' equity. Choice "a" is incorrect. Investments by owners, typically in the form of stock purchases or contributions, will serve to increase shareholders' equity. Choice "c" is incorrect. Issuance of stock by sale will increase shareholders' equity, while issuance of stock dividends will have no effect on total shareholders' equity. Stock dividends will reduce the book value of each share outstanding. Choice "d" is incorrect. Acquisition of assets with cash will have no effect on total stockholders' equity. The acquisition of assets with cash will effectively reclassify assets from one type to another without impacting liabilities or equity.

• Question 189:

  Which of the following is true regarding the auditor's responsibility to report on information accompanying the basic financial statements in a client-prepared document?

  A. The auditor may report on information accompanying the basic financial statements in a clientprepared document only if he or she has been specifically engaged to do so.
  B. The auditor is required to express an opinion on whether information accompanying the basic financial statements in a client-prepared document is fairly stated in all material respects in relation to the financial statements taken as a whole.
  C. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include a description of the character of the audit work performed.
  D. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include an opinion on the information but should not describe the character of the audit work performed.
  C. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include a description of the character of the audit work performed.

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  Choice "c" is correct. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include a description of both the character of the audit work performed and the degree of responsibility assumed. Choice "a" is incorrect. There is no requirement that the auditor be specifically engaged to report on such information. If auditing procedures have been applied to the information, the auditor is permitted to report thereon. Choice "b" is incorrect. The auditor is permitted but not required to report on such information. Choice "d" is incorrect. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include an opinion on the information and a description of both the character of the audit work performed and the degree of responsibility assumed.

• Question 190:

  An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?

  A. Request that the client revise the letter of transmittal.
  B. Include an explanatory paragraph in the auditor's report.
  C. Consider withdrawing from the engagement.
  D. Request a client representation letter acknowledging the inconsistency.
  A. Request that the client revise the letter of transmittal.

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  Choice "a" is correct. When information accompanies audited financial statements in a client-prepared document, the auditor is required to read the information. If such information is materially inconsistent with the financial statements and the financial statements do not require revision, the auditor should request that the information (in this case the letter of transmittal) be revised. Choice "b" is incorrect. The auditor would only revise the report to include discussion of the material inconsistency if the client were unwilling to revise the transmittal letter appropriately. Choice "c" is incorrect. The auditor would only consider withdrawing from the engagement if the client were unwilling to revise the transmittal letter appropriately. Choice "d" is incorrect. The auditor would not request a client representation letter acknowledging the inconsistency, as correction (and not simply acknowledgment) of the error is desired.