AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 201:

  On June 30, 1991, ABC Corp. incurred a $100,000 net loss from disposal of a component of a business. Also, on June 30, 1991, ABC paid $40,000 for property taxes assessed for the calendar year 1991. What amount of the foregoing items should be included in the determination of ABC's net income or loss for the six-month interim period ended June 30, 1991?

  A. $140,000
  B. $120,000
  C. $90,000
  D. $70,000
  B. $120,000

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  Choice "b" is correct. $120,000 expense included in the determination of net income or loss for the six- month interim period ended June 30, 1991.

• Question 202:

  When assessing an internal auditor's objectivity, an independent auditor should:

  A. Evaluate the adequacy of the internal auditor's audit plans.
  B. Inquire about the internal auditor's educational background and professional certification.
  C. Consider the organizational level to which the internal auditor reports.
  D. Review the internal auditor's audit documentation.
  C. Consider the organizational level to which the internal auditor reports.

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  Choice "c" is correct. When assessing an internal auditor's objectivity, an independent auditor should consider the organizational level to which the internal auditor reports. Choice "a" is incorrect. Evaluating the adequacy of the internal auditor's audit plans would be performed when assessing an internal auditor's competence. Choice "b" is incorrect. Inquiring about the internal auditor's educational background and professional certification would be performed when assessing an internal auditor's competence. Choice "d" is incorrect. Reviewing the internal auditor's audit documentation (to determine the quality of the reports and recommendations) would be performed when assessing an internal auditor's competence.

• Question 203:

  Which of the following is incorrect with regard to government intervention in market operations?

  A. Government intervention may create a price different from the market price, thus causing either a surplus or a shortage.
  B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.
  C. Price floors are minimum prices established by law, such as minimum wages and agricultural price supports.
  D. Rationing limits the availability of certain goods to a specified level, which lowers demand and prices for a given supply.
  B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.

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  Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor. Choices "a", "c", and "d" are correct statements.

• Question 204:

  An attest engagement is one in which a CPA is engaged to:

  A. Issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party.
  B. Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.
  C. Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts.
  D. Assemble the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance.
  A. Issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party.

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  Choice "a" is correct. An attest engagement is one in which a CPA is engaged to issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about subject matter, that is the responsibility of another party. Choice "b" is incorrect. Providing tax advice or preparing a tax return based upon financial information, the CPA has not audited or reviewed does not require the CPA to "attest" to anything. Choice "c" is incorrect. Testifying as an expert witness in accounting, auditing, or tax matters given certain stipulated facts is not considered to be an attestation engagement. Choice "d" is incorrect. Assembling the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance is a compilation engagement that falls under SSARS and no attestation is provided.

• Question 205:

  Blue, CPA, has been asked to render an opinion on the application of accounting principles to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but should:

  A. Consult with the continuing CPA to obtain information relevant to the transaction.
  B. Report the engagement's findings to the entity's audit committee, the continuing CPA, and management.
  C. Disclaim any opinion that the hypothetical application of accounting principles conforms with generally accepted accounting principles.
  D. Notify the entity that the report is for the general use of all interested parties.
  A. Consult with the continuing CPA to obtain information relevant to the transaction.

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  Choice "a" is correct. When rendering an opinion on the application of accounting principles to a specific transaction, the reporting CPA should consult with the continuing CPA to obtain information relevant to the transaction. Choice "b" is incorrect. The reporting CPA has no obligation to report the engagement's findings to the continuing CPA. Generally, the report would be addressed to the requesting party (e.g., management, the board of directors, etc.). Choice "c" is incorrect. There is no disclaimer in the report; however, the CPA does state that the preparers of the financial statements are responsible for proper accounting treatment. Choice "d" is incorrect. Use of the report is restricted to specified parties.

• Question 206:

  Which of the following statements is correct regarding the declaration of a stock dividend by a corporation having only one class of par value stock?

  A. A stock dividend is prohibited in such a corporation.
  B. A stock dividend increases a stockholder's proportionate share of corporate ownership.
  C. A stock dividend causes a decrease in the assets of the corporation.
  D. A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders.
  D. A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders.

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  Choice "d" is correct. Stock dividends are dividends in the corporation's own authorized but unissued shares given to existing shareholders on account of their shares. Choice "a" is incorrect. Despite the fact that a stock dividend in a corporation with only one class of par value stock does not change a shareholder's proportional ownership or affect capitalization of the corporation, nothing prohibits a corporation--even a corporation with only one class of par value stock-from declaring a stock dividend. Choice "b" is incorrect. With a stock dividend, when there is only one class of stock, each shareholder receives a proportionate amount of stock, resulting in each shareholder owning the same percentage of the corporation after the dividend is issued as he or she owned before the dividend was issued. Choice "c" is incorrect. When a stock dividend is issued in a corporation's own stock, no assets are distributed and the solvency of the corporation remains the same.

• Question 207:

  Under the Revised Model Business Corporation Act, which of the following must be contained in a corporation's articles of incorporation?

  A. Quorum voting requirements.
  B. Names of stockholders.
  C. Provisions for issuance of par and nonpar shares.
  D. The number of shares the corporation is authorized to issue.
  D. The number of shares the corporation is authorized to issue.

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  Choice "d" is correct. The articles must set out the corporation's authorized shares. Choice "a" is incorrect. Quorum requirements, if stated at all, usually are in the bylaws; they need not be included in the articles of incorporation. Choice "b" is incorrect. The articles need not include the names of stockholders. Choice "c" is incorrect. The RMBCA has eliminated the concept of par value and so does not have a requirement that par value be established in the articles.

• Question 208:

  The management of ABC Company, a nonissuer, engaged Bell, CPA, to express an opinion on ABC's internal control. Bell's report described several material weaknesses and potential errors and irregularities that could occur. Subsequently, management included Bell's report in its annual report to the Board of Directors with a statement that the cost of correcting the weaknesses would exceed the benefits. Bell should:

  A. Disclaim an opinion as to management's cost-benefit statement.
  B. Advise the Board that Bell either agrees or disagrees with management's statement.
  C. Advise management that Bell's report was restricted for use only by management.
  D. Advise both management and the Board that Bell was withdrawing the opinion.
  A. Disclaim an opinion as to management's cost-benefit statement.

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  Choice "a" is correct. The auditor should disclaim an opinion as to management's cost-benefit statement (i.e., "We do not express an opinion or any other form of assurance on management's cost-benefit statement."). Choice "b" is incorrect. The CPA should disclaim an opinion regarding management's representation. Choice "c" is incorrect. The CPA's report on internal control is not restricted as to use. Choice "d" is incorrect. The CPA does not need to withdraw the opinion as long as a disclaimer on management's cost-benefit statement is presented.

• Question 209:

  Which of the following requirements must be met to have a valid partnership exist?

  A. Co-ownership of all property used in a business. II. Co-ownership of a business for profit.
  B. I only.
  C. II only.
  D. Both I and II.
  E. Neither I nor II.
  B. I only.

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  Choice "b" is correct. Rule: A partnership is defined as an association of two or more persons who agree to carry on as coowners a business for profit. Thus, II is necessary. However, there is no requirement that all property used in the business be co-owned; it may be owned by individual partners. Thus I is not necessary. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 210:

  In open market transactions, ABC Corp. simultaneously sold its long-term investment in XYZ Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions. ABC's gain on the purchase of

  its own bonds exceeded its loss on the sale of the XYZ bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently.

  ABC should report the:

  A. Net effect of the two transactions as an extraordinary gain.
  B. Net effect of the two transactions in income before extraordinary items.
  C. Effect of its own bond transaction gain in income before extraordinary items, and report the Iron bond transaction as an extraordinary loss.
  D. Effect of its own bond transaction as an extraordinary gain, and report the XYZ bond transaction loss in income before extraordinary items.
  D. Effect of its own bond transaction as an extraordinary gain, and report the XYZ bond transaction loss in income before extraordinary items.

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  Choice "d" is correct, these are two separate transactions because ABC Corp. (1) sold XYZ Corp. bonds (an investment) for a loss, and, (2) bought back its own (ABC) Corp. bonds (a debt) for a gain. This is not a "refinancing" (where one would sell new bond debt to buy back old bond debt outstanding). The gain from the purchase of its own bonds is an "extraordinary gain" because it is both unusual in nature and infrequently occurring (per APB Opinion No. 30 and SFAS No. 145). The XYZ Corp. transaction is a loss in "income before extraordinary items." Choices "a" and "b" are incorrect. The two transactions are separate and cannot be netted. Choice "c" is incorrect. Just the opposite. The sale of the investment is a loss in "income before extraordinary items," while the purchase of its bond debt is an "extraordinary gain" according to the provisions of APB Opinion No. 30.