AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 231:

  A company enters into an agreement with a firm who will factor the company's accounts receivable. The factor agrees to buy the company's receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80 percent of the face value of receivables at an annual rate of 10 percent and charge a fee of 2 percent on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year. Fees and interest are not deducted in advance. Assuming a 360-day year, what is the annual cost of financing?

  A. 12.0 percent.
  B. 14.0 percent.
  C. 16.0 percent.
  D. 17.5 percent.
  D. 17.5 percent.

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  Choice "d" is correct. 17.5% annual cost of financing.

• Question 232:

  Capital investments require balancing risk and return. Managers have a responsibility to ensure that the investments that they make in their own firms increase shareholder value. Managers have met that responsibility if the return on the

  capital investment:

  A. Exceeds the rate of return associated with the firm's beta factor.
  B. Is less than the rate of return associated with the firm's beta factor.
  C. Is greater than the prime rate of return.
  D. Is less than the prime rate of return.
  A. Exceeds the rate of return associated with the firm's beta factor.

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  Choice "a" is correct. A capital investment whose rate of return exceeds the rate of return associated with the firm's beta factor will increase the value of the firm. Choice "b" is incorrect. A capital investment whose rate of return is less than the rate of return associated with the firm's beta factor will decrease the value of the firm. Choice "c" is incorrect. The return on a capital investment in relation to the prime rate of return will not necessarily indicate if the investment increases or decreases the value of the company without knowing the relative risk of the firm in relation to the market and its relationship to the prime rate. Choice "d" is incorrect. The return on a capital investment in relation to the prime rate of return will not necessarily indicate if the investment increases or decreases the value of the company without knowing the relative risk of the firm in relation to the market and its relationship to the prime rate.

• Question 233:

  In a member managed LLC, the apparent authority of a member to bind the LLC in dealing with third parties:

  A. Would permit a member to submit a claim against the LLC to arbitration.
  B. Must be derived from the express powers and purposes contained in the operating agreement.
  C. Will be effectively limited by a formal resolution of the members of which third parties are aware.
  D. Will be effectively limited by a formal resolution of the members of which third parties are unaware.
  C. Will be effectively limited by a formal resolution of the members of which third parties are aware.

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  Choice "c" is correct. This is really an agency question on apparent authority. Apparent authority is authority that a third party reasonably believes an agent has. If the third party is aware of a restriction on the agent's authority, the third party cannot reasonably believe that the agent has the restricted authority. Choice "a" is incorrect. Submitting a claim to arbitration is an extraordinary act and so is not within a member's apparent authority. Choice "b" is incorrect. Apparent authority is derived from what the reasonable person believes is the authority of a member, not the express powers and purposes contained in the operating agreement. Choice "d" is incorrect. A formal resolution of the members will not be effective to destroy apparent authority if third parties are unaware of the resolution.

• Question 234:

  Which of the following procedures would be most effective in reducing attestation risk?

  A. Discussion with responsible individuals.
  B. Examination of evidence.
  C. Inquiries of senior management.
  D. Analytical procedures.
  B. Examination of evidence.

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  Choice "b" is correct. Evidence obtained directly by the accountant (e.g., through physical examination) provides more persuasive evidence than evidence obtained through inquiry, discussion, or analytical procedures, and therefore reduces attestation risk. Choices "a", "c", and "d" are incorrect, based on the above .

• Question 235:

  ABC International owes 500,000 local currency units to its foreign supplier in 90 days. The current spot rate of the local currency unit is $.60. ABC purchases a call option to buy the local currency unit in 90 days for $.61 for a premium of

  $.005. The exchange rate for the local currency increases to $.63 in 90 days.

  What will ABC do on the payables' settlement date?

  A. ABC will exercise its option and settle the payables with proceeds from the option contract at a gain.
  B. ABC will not exercise the option and settle the payables after purchase of the local currency unit at the spot rate.
  C. ABC will be indifferent as to whether it exercises the option or not.
  D. ABC will sell the option at the settlement date and use its proceeds along with local currency units purchased at the spot rate to satisfy the amount payable.
  A. ABC will exercise its option and settle the payables with proceeds from the option contract at a gain.

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  Choice "a" is correct. ABC will exercise its option and liquidate the payables associated with the proceeds. The exercise of the option represents a less costly alternative than acquisition of proceeds at the spot rate at the time the payables are due. The net impact of exercise of the option is computed as follows: The premium is a sunk cost and is irrelevant to the decision. Note that the premium is a factor in determining the net gain (loss) but not in deciding whether to exercise the option. Choices "b", "c", and "d" are incorrect, per computation above.

• Question 236:

  An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report. The auditor's responsibility for events occurring subsequent to the original date was:

  A. Extended to subsequent events occurring through the date of reissuance of the report.
  B. Extended to include all events occurring since the original date of the auditor's report.
  C. Limited to the specific event referenced.
  D. Limited to include only events occurring up to the date of the last subsequent event referenced.
  C. Limited to the specific event referenced.

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  Choice "c" is correct. When an auditor issues a report that is dual dated for a subsequent event occurring after the original date of the auditor's report, the auditor's responsibility for events occurring subsequent to the original date of the auditor's report is limited to the specific event referenced. Choices "a", "b", and "d" are incorrect. The auditor takes responsibility for only the specific event noted in the dual dating and for no other event occurring subsequent to the original date of the auditor's report.

• Question 237:

  ABC Inc. has no capital rationing constraint and is analyzing many independent investment alternatives. ABC should accept all investment proposals:

  A. If debt financing is available for them.
  B. That have positive cash flows.
  C. That provide returns greater than the after-tax cost of debt.
  D. That have a positive net present value.
  D. That have a positive net present value.

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  Choice "d" is correct. Accept all investment alternatives that have a positive net present value (NPV). A positive NPV means the return on the investment exceeds the hurdle rate (the minimum acceptable rate of return). Choice "a" is incorrect. The cost of debt financing is a factor in determining the hurdle rate. Choice "b" is incorrect. The cash flow may be positive but the return on investment may be unacceptable. Choice "c" is incorrect. The cost of debt financing is a factor in determining the hurdle rate.

• Question 238:

  When communicating internal control related matters noted in an audit of a nonissuer, an auditor's report issued on significant deficiencies should indicate that:

  A. Errors or fraud may occur and not be detected because there are inherent limitations in any internal control.
  B. The issuance of an unqualified opinion on the financial statements may be dependent on corrective follow-up action.
  C. A material weakness exists when the deficiencies noted were not detected within a timely period by employees in the normal course of performing their assigned functions.
  D. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.
  D. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.

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  Choice "d" is correct. Any report issued on significant deficiencies should indicate that the purpose of the audit was to report on the financial statements and not to provide assurance on internal control. Choice "a" is incorrect. A statement that errors or irregularities may occur and not be detected due to inherent limitations in internal control is included in the report when an auditor is engaged to express an opinion on internal control, not when the auditor is reporting as part of an audit. Choice "b" is incorrect. The issuance of an unqualified opinion on the financial statements is never dependent on corrective follow-up action. Choice "c" is incorrect. A control deficiency (and not necessarily a material weakness) exists when deficiencies are not detected within a timely period by employees in the normal course of performing their assigned functions.

• Question 239:

  ABC Corp. had the following infrequent transactions during 1989:

  ?A $190,000 gain on reacquisition and retirement of bonds. This material event is also considered unusual for ABC Corp. ?A $260,000 gain on the disposal of a component of a business. ABC continues similar operations at another location. ?A $90,000 loss on the abandonment of equipment.

  In its 1989 income statement, what amount should ABC report as total infrequent net gains that are not considered extraordinary?

  A. $100,000
  B. $170,000
  C. $360,000
  D. $450,000
  B. $170,000

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  Infrequent net gains not considered extraordinary include: Choice "b" is correct. $170,000.

• Question 240:

  A period of inflation:

  A. Increases the price level, which benefits those who are entitled to receive specific amounts of money.
  B. Enhances the positive relationship between the price level and the purchasing power of money.
  C. Harms anyone who has an obligation to pay a specific amount and benefits anyone who is entitled to receive a specific amount.
  D. Increases the price level, which is negatively related to the purchasing power of money.
  D. Increases the price level, which is negatively related to the purchasing power of money.

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  Choice "d" is correct. A period of inflation increases the price level, which is negatively related to the purchasing power of money (inflation erodes the value of money). Choice "a" is incorrect. When price levels increase, those with fixed amounts of money are hurt. Choice "b" is incorrect. The relationship between price levels and the purchasing power of money is negative, or inverse. Choice "c" is incorrect. Inflation helps anyone with a fixed obligation since the debt can be repaid in inflated dollars. Those receiving a specific fixed amount are harmed.