AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 291:

  Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

  A. Recomputing a sample of large-dollar transactions occurring after year-end for arithmetic accuracy.
  B. Investigating changes in stockholders' equity occurring after year-end.
  C. Inquiring of the entity's legal counsel concerning litigation, claims, and assessments arising after yearend.
  D. Confirming bank accounts established after year-end.
  C. Inquiring of the entity's legal counsel concerning litigation, claims, and assessments arising after yearend.

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  Choice "c" is correct. The auditor would most likely inquire of the entity's legal counsel concerning litigation, claims and assessments arising after year-end in order to obtain evidence about the occurrence of subsequent events. Claims arising after year-end might well impact the year-end financial statements. Choice "a" is incorrect. Recomputing a sample of large-dollar transactions occurring after year-end for arithmetic accuracy would not provide evidence about year-end amounts. Choice "b" is incorrect. The auditor would inquire about changes in stockholders' equity occurring after year-end, but would not generally perform an investigation of such items. Choice "d" is incorrect. Confirming bank accounts established after year-end is generally not done (only those in existence at year-end are confirmed). Accounts established after year-end generally would not be relevant to year-end amounts.

• Question 292:

  In financial reporting of segment data, which of the following items is always used in determining a segment's operating income?

  A. Income tax expense.
  B. Sales to other segments.
  C. General corporate expense.
  D. Gain or loss on discontinued operations.
  B. Sales to other segments.

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  Choice "b" is correct. Sales to other segments would be used in determining a segment's operating income. Rule: Equity in net income of another company, general corporate expenses, interest, income tax expense, and gains or losses on discontinued operations are all not included in segment profit unless they are included in the determination of segment profit reported to the "Chief Operating Decision Maker."

• Question 293:

  To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:

  A. Vendor's invoices.
  B. Purchase orders.
  C. Receiving reports.
  D. Canceled checks.
  C. Receiving reports.

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  Choice "c" is correct. The auditor is looking for situations where merchandise has been received but was not recorded. Such situations may be identified by selecting receiving reports and then determining whether the related payable was recorded. Choice "a" is incorrect. Selecting from vendor's invoices might allow a purchase to be selected for which the goods have not yet been received. Choice "b" is incorrect. Selecting from purchase orders might allow a purchase to be selected for which the goods have not yet been received. Choice "d" is incorrect. Selecting from canceled checks will not result in testing of accounts payable, since the payable is eliminated once payment is made.

• Question 294:

  A divisional manager receives a bonus based on 20% of the residual income from the division. The results of the division include: Divisional revenues, $1,000,000; divisional expenses, $500,000; divisional assets, $2,000,000; and the required rate of return is 15%. What amount represents the manager's bonus?

  A. $200,000
  B. $140,000
  C. $100,000
  D. $40,000
  D. $40,000

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  Choice "d" is correct as shown in the computation below: Choice "a" is incorrect. The amount of the residual income itself is not the amount of the bonus. Choice "b" is incorrect. The difference between revenues (before consideration of divisional expenses) and the hurdle amount is not residual income. The bonus would be improperly calculated if residual income were to be inflated by divisional expenses as suggested by this answer. Choice "c" is incorrect. The difference between the hurdle amount and the residual income ($100,000) is not the bonus amount.

• Question 295:

  An auditor's responsibility to express an opinion on the financial statements is:

  A. Implicitly represented in the auditor's standard report.
  B. Explicitly represented in the opening paragraph of the auditor's standard report.
  C. Explicitly represented in the scope paragraph of the auditor's standard report.
  D. Explicitly represented in the opinion paragraph of the auditor's standard report.
  B. Explicitly represented in the opening paragraph of the auditor's standard report.

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  Choice "b" is correct. The auditor's responsibility to express an opinion on the FS is explicitly represented in the last sentence of the opening paragraph: "Our responsibility is to express an opinion on these financial statements based on our audit." Choice "a" is incorrect. The responsibility to express an opinion is explicitly represented (i.e., clearly stated), not implicitly represented (i.e., assumed). Choice "c" is incorrect. There are no words in the scope paragraph that represent an auditor's responsibility to express an opinion. Choice "d" is incorrect. The opinion paragraph includes the auditor's opinion, but does not specifically mention the auditor's responsibility to express an opinion.

• Question 296:

  The principle measure of non-diversifiable risk included in the CAPM formula is the beta coefficient. The beta coefficient measures the volatility or risk inherent in an investment by:

  A. Computing the ratio of changes in earnings per share to changes in sales.
  B. Computing the ratio of stock price to earnings per share.
  C. Computing the ratio of percentage changes in a stock's price to percentage changes in overall market values during the same period.
  D. Computing the ratio of percentage changes in the expected value of alpha equivalents to derivative fluctuations.
  C. Computing the ratio of percentage changes in a stock's price to percentage changes in overall market values during the same period.

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  Choice "c" is correct. The beta coefficient represents the measure of a particular stock's percentage change compared to the percentage change in the market over the same period. The equation for the beta coefficient is as follows: % in Stock Price % in Market price Choice "a" is incorrect. The percentage change in earnings per share related to a percentage change in sales represents the degree of combined leverage. Choice "b" is incorrect. The ratio of stock price to earnings per share is the price earnings ratio. Choice "d" is incorrect. Choice "d" represents a word salad distracter of nonsense terms.

• Question 297:

  The capital budgeting model that is generally considered the best model for long-range decision-making is the:

  A. Payback model.
  B. Accounting rate of return model.
  C. Unadjusted rate of return model.
  D. Discounted cash flow model.
  D. Discounted cash flow model.

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  Choice "d" is correct. The discounted cash flow model is the best for long-term decisions. Discounted cash flow methods include NPV, IRR, and profitability index. Choice "a" is incorrect. Payback and bailout payback do not consider the time value of money or the return after the initial investment is recovered. The difference between the two methods is that bailout payback takes salvage value into account in calculating cash flows. Choice "b" is incorrect. Accounting rate of return is based on accrual income rather than cash flows. It does not consider the time value of money and is considered inferior to the discounted cash flow methods. Choice "c" is incorrect. There is no unadjusted rate of return model.

• Question 298:

  The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to:

  A. Refer the disagreement to the AICPA's Quality Review Committee.
  B. Document the details of the disagreement with the conclusion reached.
  C. Discuss the disagreement with the entity's management or its audit committee.
  D. Report the disagreement to an impartial peer review monitoring team.
  B. Document the details of the disagreement with the conclusion reached.

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  Choice "b" is correct. Each assistant has a professional responsibility to bring to the attention of appropriate individuals in the firm, disagreements or concerns the assistant might have with respect to accounting and auditing issues that he or she believes are of significance to the financial statements or auditor's report. In addition, each assistant should have a right to document his or her disagreement if he or she believes it is necessary to be disassociated from the resolution of the matter. Choice "a" is incorrect. Quality control committees are primarily concerned with determining whether quality control policies and procedures are being effectively applied. Generally, they would not get involved with disagreements related to specific engagements. Choice "c" is incorrect. Disagreements among an audit firm's staff would generally be handled internally. Discussion of such matters with the client would be inappropriate. Choice "d" is incorrect. Impartial peer review teams are primarily concerned with determining whether quality control policies and procedures are being effectively applied. Generally, they would not get involved with disagreements related to specific engagements.

• Question 299:

  The theory underlying the cost of capital is primarily concerned with the cost of:

  A. Long-term funds and old funds.
  B. Short-term funds and new funds.
  C. Long-term funds and new funds.
  D. Any combination of old or new, short-term or long-term funds.
  D. Any combination of old or new, short-term or long-term funds.

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  Choice "d" is correct. The cost of capital considers the cost of all funds - whether they are short-term, long- term, new or old. Choices "a", "b", and "c" are incorrect, per above Explanation.

• Question 300:

  Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if:

  A. Rivers and Lee reside in different states.
  B. The agreement cannot be completed within one year from the date on which it will be entered into.
  C. Either Rivers or Lee is to contribute more than $500 in capital.
  D. The partnership intends to buy and sell real estate.
  B. The agreement cannot be completed within one year from the date on which it will be entered into.

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  Choice "b" is correct. A transaction which cannot be completed within a year must be in writing to be enforceable. Choice "a" is incorrect. Residence of the prospective partners is not relevant. Choice "c" is incorrect. The statute of frauds $500 threshold applies to the sale of goods only. Choice "d" is incorrect. Transactions in land are within the statute of frauds, but the possibility that a partnership may engage in a real estate transaction is not a transaction in land.