AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 251:

  According to the FASB conceptual framework, which of the following relates to both relevance and reliability?

  A. Comparability.
  B. Feedback value.
  C. Verifiability.
  D. Timeliness.
  A. Comparability.

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  Choice "a" is correct. Comparability and consistency are secondary qualities of both relevance and reliability. SFAC 2 para. 111-122. Choice "b" is incorrect. Feedback value is a key characteristic of relevance only. Choice "c" is incorrect. Verifiability is a key characteristic of reliability only. Choice "d" is incorrect. Timeliness is a key characteristic of relevance only.

• Question 252:

  In the pharmaceutical industry where a diabetic must have insulin no matter what the cost, the diabetic's demand is considered to be:

  A. Perfectly elastic.
  B. Perfectly inelastic.
  C. Relatively elastic.
  D. Relatively inelastic.
  B. Perfectly inelastic.

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  Explanation Explanation/Reference:Choice "b" is correct. When a good is demanded, no matter the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demand with price making no difference. Choices "a" and "c" are incorrect. There is no such thing as perfect elasticity. However, the more elastic demand is, the greater the change in quantity demand for price changes. Choice "d" is incorrect. Insulin is an example of perfectly inelastic.

• Question 253:

  Demand for a product tends to be price inelastic if:

  A. The product is considered a luxury item.
  B. Few good complements for the product are available.
  C. People spend a large share of their income on the product.
  D. Few good substitutes are available for the product.
  D. Few good substitutes are available for the product.

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  Choice "d" is correct. Demand for a product tends to be price inelastic if few good substitutes are available for the product. Even if price increases, consumers are then unable to switch to substitute goods, because there aren't any. Choice "a" is incorrect. Luxury items may have good substitutes available. Choice "b" is incorrect. Complementary goods are those whose demand fluctuates in unison; substitute goods are more relevant here. Choice "c" is incorrect. If consumers spend a large share of their income on the product, they will be very sensitive to any price changes and hence product demand would be more "elastic."

• Question 254:

  Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations?

  A. The recipients are likely to sign the confirmations without devoting proper attention to them.
  B. Subsequent cash receipts are unusually difficult to verify.
  C. Analytical procedures indicate that few exceptions are expected.
  D. The combined assessed level of inherent risk and control risk is low.
  A. The recipients are likely to sign the confirmations without devoting proper attention to them.

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  Choice "a" is correct. If the recipients of confirmations are likely to sign them without devoting proper attention to them, it is possible that a misstatement in the related receivable will not be discovered by the auditor (i.e., when the balance on the confirmation is incorrect and the recipient mistakenly signs it anyway). Use of the blank form of confirmation provides a greater degree of assurance in this situation because it forces the recipient to determine the receivable balance. Choice "b" is incorrect. Inability to verify subsequent cash receipts makes follow-up of unconfirmed accounts more difficult. Since blank forms may result in lower response rates (because they require additional effort), use of the blank form in this situation would be less likely. Choice "c" is incorrect. If few exceptions were expected, it would be acceptable to use positive confirmations. (Blank confirmations may provide a greater degree of assurance, which would be more important if many exceptions were expected.) Choice "d" is incorrect. In low risk situations, it would be acceptable to use positive confirmations. (Blank confirmations may provide a greater degree of assurance, which would be more important in high-risk situations.)

• Question 255:

  In which stage of supply chain management will integration move 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?

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

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  Choice "c" is correct. 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 "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 "b" is incorrect. 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 "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 256:

  Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to withdraw from the partnership. Which of the following statements is correct?

  A. Unless Carr consents to a withdrawal, Grey must apply to a court and obtain a decree allowing withdrawal.
  B. Grey may not withdraw unless Carr consents.
  C. Grey may withdraw only after notice of the proposed dissolution is given to all partnership creditors.
  D. Grey may withdraw from the partnership at any time.
  D. Grey may withdraw from the partnership at any time.

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  Choice "d" is correct. Rule: Where a partnership agreement does not state the duration of the partnership, the partners may withdraw at any time. The partner need not obtain consent of the other partners or of the court. Choices "a" and "b" are incorrect, per the above rule. Choice "c" is incorrect. A partner has no duty to inform creditors of his intent to withdraw in order for the withdrawal to be effective (although notice is needed to limit the partner's personal liability).

• Question 257:

  Which of the following is true about an auditor's responsibility with respect to accounting estimates?

  A. The auditor is responsible for both preparing accounting estimates and evaluating their reasonableness.
  B. The auditor is responsible for preparing accounting estimates in accordance with generally accepted auditing standards.
  C. The auditor is responsible for evaluating the reasonableness of accounting estimates.
  D. The auditor has no responsibility with respect to accounting estimates.
  C. The auditor is responsible for evaluating the reasonableness of accounting estimates.

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  Choice "c" is correct. The auditor is responsible for evaluating the reasonableness of accounting estimates. Choices "a" and "b" are incorrect. Management is responsible for establishing a process for preparing accounting estimates. Choice "d" is incorrect. The auditor must determine whether the accounting estimate is reasonable in the circumstances.

• Question 258:

  Which of the following strategies would a CPA most likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?

  A. Continuous monitoring and analysis of transaction processing with an embedded audit module.
  B. Increased reliance on internal control activities that emphasize the segregation of duties.
  C. Verification of encrypted digital certificates used to monitor the authorization of transactions.
  D. Extensive testing of firewall boundaries that restrict the recording of outside network traffic.
  A. Continuous monitoring and analysis of transaction processing with an embedded audit module.

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  Choice "a" is correct. In a paperless system, the CPA would most likely need to continuously monitor and analyze transaction processing to ensure that controls were operating effectively throughout the period under audit. An embedded audit module is one way to achieve this goal. Choice "b" is incorrect. While segregation of duties is an important control, there would be no reason to increase reliance on such controls in a paperless system. Choice "c" is incorrect. Verification of encrypted digital certificates used to monitor the authorization of transactions would be used in all computerized systems. Choice "d" is incorrect. Testing of firewall boundaries that restrict the recording of outside network traffic by itself does not ensure the completeness and accuracy of the financial data.

• Question 259:

  Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit:

  A. Have a secondary market for investors.
  B. Are regulated by the Federal Reserve System.
  C. Are usually sold in denominations of a minimum of $100,000.
  D. Have yields considerably greater than bankers' acceptances and commercial paper.
  D. Have yields considerably greater than bankers' acceptances and commercial paper.

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  Choice "d" is correct. Negotiable CDs generally carry interest rates slightly lower than bankers' acceptances (which are drafts drawn on deposits at a bank) or commercial paper (which is unsecured debt issued by credit worthy customers). Choice "a" is incorrect. Negotiable CDs have a formal secondary market. Choice "b" is incorrect. Negotiable CDs are a product of the banking industry, which is regulated by the Federal Reserve Board. Choice "c" is incorrect. Negotiable CDs are usually sold in denominations of a minimum of $100,000.

• Question 260:

  An auditor most likely would perform substantive tests of details on payroll transactions and balances when:

  A. Cutoff tests indicate a substantial amount of accrued payroll expense.
  B. The assessed level of control risk relative to payroll transactions is low.
  C. Analytical procedures indicate unusual fluctuations in recurring payroll entries.
  D. Accrued payroll expense consists primarily of unpaid commissions.
  C. Analytical procedures indicate unusual fluctuations in recurring payroll entries.

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  Choice "c" is correct. An auditor most likely would perform substantive tests of details on payroll transactions and balances when analytical procedures indicate unusual fluctuations in recurring payroll entries. Generally an auditor can audit the payroll accounts utilizing mostly analytical procedures; however if the results of such procedures indicate unusual fluctuations, the auditor would employ more persuasive, substantive tests of details. Choice "a" is incorrect. A substantial amount of accrued payroll expense would not necessarily cause the auditor to perform substantive tests of details on payroll transactions, since the balance may be effectively tested using analytical procedures. Choice "b" is incorrect. When the assessed level of control risk relative to payroll is low, the auditor would probably perform only analytical procedures to test the related balances. If control risk rose to a high level, then substantive tests of details would probably be utilized. Choice "d" is incorrect. Unpaid commissions may be tested effectively with analytical procedures.