AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 281:

  What are the Statements of Financial Accounting Concepts intended to establish?

  A. Generally accepted accounting principles in financial reporting by business enterprises.
  B. The meaning of "Present fairly in accordance with generally accepted accounting principles."
  C. The objectives and concepts for use in developing standards of financial accounting and reporting.
  D. The hierarchy of sources of generally accepted accounting principles.
  C. The objectives and concepts for use in developing standards of financial accounting and reporting.

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  Choice "c" is correct. Statements of Financial Accounting Concepts are intended to establish the objectives and concepts that the Financial Accounting Standards Board will use in developing standards of financial accounting and reporting. SFAC 1 para. 3 Choice "a" is incorrect. The Statements of Financial Accounting Concepts do not specify financial accounting standards prescribing accounting procedures or practices. SFAC 1 para. 3 Choice "b" is incorrect. Auditing standards develop the meaning of "Present fairly in accordance with generally accepted accounting principles." Choice "d" is incorrect. The hierarchy of sources of generally accepted accounting principles is determined by GAAP.

• Question 282:

  A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's:

  

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

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  Choice "c" is correct. It is not appropriate for the successor auditor to request a review of the predecessor auditor's engagement letter. This is a business matter between the client and the predecessor auditor that has no impact on the successor's audit. Conversely, review of the predecessor auditor's audit documentation is appropriate and customary to facilitate the successor's audit. Choices "a", "b", and "d" are incorrect, based on the above explanation.

• Question 283:

  Which of the following statements represents a quality control requirement under Government Auditing Standards?

  A. A CPA who conducts government audits is required to undergo an annual external quality control review when an appropriate internal quality control system is not in place.
  B. A CPA seeking to enter into a contract to perform an audit should provide the CPA's most recent external quality control review report to the party contracting for the audit.
  C. An external quality control review of a CPA's practice should include a review of the audit documentation for each government audit performed since the prior external quality control review.
  D. A CPA who conducts government audits may not make the CPA's external quality control review report available to the public.
  B. A CPA seeking to enter into a contract to perform an audit should provide the CPA's most recent external quality control review report to the party contracting for the audit.

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  Choice "b" is correct. Audit organizations seeking to enter into a contract to perform an audit in accordance with government auditing standards should provide their most recent external quality control review report to the party contracting for the audit. Choice "a" is incorrect. Each audit organization conducting audits in accordance with governmental auditing standards should have an appropriate internal quality control system in place and undergo an external quality control review. Choice "c" is incorrect. It is not necessary to review all government audits performed since the last external quality control review. Reviewers should select audits that provide a reasonable cross-section of engagements performed since the last review. Choice "d" is incorrect. It is recommended that the report be made available to the public.

• Question 284:

  A basic determinant of the elasticity of demand for a normal good is the:

  A. Length of time producers have to respond to market changes.
  B. Number of substitutes available for the product.
  C. Number of sellers of the product.
  D. Number of complements available for the product.
  B. Number of substitutes available for the product.

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  Choice "b" is correct. The change in demand for a product, based upon a given change in that product's price, is dependent on whether or not other (presumably cheaper) goods can be substituted for the product. Choice "a" is incorrect. The elasticity of supply (not demand) would take into account the response time producers might have to market changes. Choice "c" is incorrect. The number of sellers is irrelevant when calculating the elasticity of demand. Choice "d" is incorrect. A complement good's demand is the same as the primary good. For example, an increase in the demand for a given food would cause the demand for its complement to also increase. The increased demand of the complement is irrelevant when calculating the elasticity of demand.

• Question 285:

  Sam, CPA, is one of the partners in a limited liability partnership with other CPAs. Sam avoids personal liability for:

  A. The wrongful acts of employees acting under his supervision.
  B. His own negligent acts.
  C. The malpractice of his partners regarding errors and omissions.
  D. The negligent actions of his subordinates under his direct control.
  C. The malpractice of his partners regarding errors and omissions.

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  Choice "c" is correct. Rule: A partner in a LLP is personally liable for tort liabilities arising from his own negligence and the negligence of his direct subordinates and for breach of contract damages. He is NOT personally liable for the negligent actions committed by his partners. Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 286:

  Which of the following categories is included in generally accepted auditing standards?

  A. Standards of review.
  B. Standards of planning.
  C. Standards of fieldwork.
  D. Standards of evidence.
  C. Standards of fieldwork.

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  Choice "c" is correct. Generally accepted auditing standards include three categories: general standards, standards of fieldwork, and standards of reporting. Choices "a", "b", and "d" are incorrect, based on the above explanation.

• Question 287:

  ABC Corp. is an accrual-basis calendar-year corporation with 100,000 shares of voting common stock issued and outstanding as of December 28, 1996. On Friday, December 29, 1996, XYZ surrendered 2,000 shares of ABC stock to ABC in exchange for $33,000 cash. XYZ had no direct or indirect interest in ABC after the stock surrender. Additional information follows:

  

  What amount of income did XYZ recognize from the stock surrender?

  A. $33,000 dividend.
  B. $25,000 dividend.
  C. $18,000 capital gain.
  D. $17,000 capital gain.
  D. $17,000 capital gain.

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  Explanation Explanation/Reference:Choice "d" is correct. $17,000 capital gain. Amount realized: Choices "a" and "b" are incorrect. Dividends are distributions of earnings. These proceeds are from the sale of stock. Choice "c" is incorrect, per above. Accumulated earnings and profits do not affect the gain calculation, they only affect the taxability of dividends paid to shareholders.

• Question 288:

  In a competitive market, an increase in the minimum wage will likely have the following effects:

  A. Firms currently paying above the new minimum wage would generally raise their pay rates (although the new minimum wage creates a new floor for employee wage bargaining purposes).
  B. Firms paying at the current minimum wage rate would generally be unaffected if the marginal revenue produced by the lowest paid workers does not exceed the new higher cost of the worker. Many firms would thus be forced to work more efficiently.
  C. Total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage.
  D. If a marginally more expensive form of capital is available to substitute for labor (e.g., due to technological advances), firms will reduce their use of labor.
  C. Total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage.

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  Choice "c" is correct. With an increase in the minimum wage, total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage. Choice "a" is incorrect. Firms currently paying above the new minimum wage would generally be unaffected, not raise their pay rates. Choice "b" is incorrect. Firms paying at the current minimum wage rate would attempt to reduce labor, not generally be unaffected. Choice "d" is incorrect. If a marginally cheaper, not more expensive.

• Question 289:

  Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each. How should profits of $120,000 for the year be divided?

  A. Gillie $60,000, Taft $30,000, Dall $30,000.
  B. Gillie $40,000, Taft $40,000, Dall $40,000.
  C. Gillie $30,000, Taft $60,000, Dall $30,000.
  D. Gillie $30,000, Taft $30,000, Dall $60,000.
  B. Gillie $40,000, Taft $40,000, Dall $40,000.

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  Choice "b" is correct. $40,000 - $40,000 - $40,000 (equally). Rule: In the absence of an agreement to the contrary, the profits will be shared equally regardless of investment of money or time. Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 290:

  In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

  A. Be unable to express an opinion on the current year's results of operations and cash flows.
  B. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
  C. Withdraw from the engagement and refuse to be associated with the financial statements.
  D. Specifically state that the financial statements are not comparable to the prior year due to an uncertainty.
  A. Be unable to express an opinion on the current year's results of operations and cash flows.

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  Choice "a" is correct. Since the auditor was unable to gather sufficient evidence on the beginning balances of the balance sheet accounts, the auditor would be unable to express an opinion on the current year's results of operations and cash flows. The auditor could express an opinion on the statement of financial position. Choice "b" is incorrect. Since the scope limitation could have a pervasive effect on the financial statements (affecting all assets and liabilities), a disclaimer of opinion (and not merely a qualified opinion) is required on the income statement and statement of cash flows. An opinion may be expressed on the year-end statement of financial position. Choice "c" is incorrect. The auditor does not need to withdraw from the engagement and refuse to be associated with the financial statements. Choice "d" is incorrect. An uncertainty does not exist. The auditor can express an opinion on one of the financial statements.