AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 341:

  The most likely result of ineffective internal control policies and procedures in the revenue cycle is that:

  A. Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped.
  B. Omission of shipping documents could go undetected, causing an understatement of inventory.
  C. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.
  D. Fictitious transactions could be recorded, causing an understatement of revenues and overstatement of receivables.
  C. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.

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  Choice "c" is correct. The most likely result of ineffective internal control policies and procedures in the revenue cycle is that final authorization of credit memos by personnel in the sales department could permit a salesman to sell, collect, and pocket the collection, then cover it up by issuing a credit memo. Final authorization of credit memos should be performed by an employee who is independent of the sales department such as the credit manager in the treasury department. Choice "a" is incorrect. The shipment of goods is an activity that takes place before the transaction is recorded. Irregularities in recording transactions in the subsidiary accounts therefore would have no impact on the timeliness of the goods being shipped. Choice "b" is incorrect. If shipping documents are omitted, then the inventory levels would be overstated since the reduction of inventory would not be recorded. Choice "d" is incorrect. If fictitious transactions in the revenue cycle are recorded, then the impact on revenues and receivables would be the same; either both would be overstated (the most likely case) or both would be understated.

• Question 342:

  Which one or the following statements about the payback method of investment analysis is correct? The payback method:

  A. Does not consider the time value of money.
  B. Uses discounted cash flow techniques.
  C. Generally leads to the same decision as other methods for long-term projects.
  D. Is rarely used in practice.
  A. Does not consider the time value of money.

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  Choice "a" is correct. The payback method does not consider the time value of money. Choice "b" is incorrect. The payback method does not use discounted cash flow techniques. The time value of money is ignored. Choice "c" is incorrect. The payback method may or may not lead to the same decision as other methods for long-term projects. Choice "d" is incorrect. The payback method is frequently used in practice because of its simplicity.

• Question 343:

  Fil and Breed are 50% partners in AandB Company, a used-car dealership. AandB maintains an average used- car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgement against Fil and Fil's child on a loan that Fil had cosigned and on which Fil's child had defaulted. National sued AandB to be allowed to attach $30,000 worth of cars as part of Fil's interest in AandB's inventory. Will National prevail in its suit?

  A. No, because the judgement was not against the partnership.
  B. No, because attachment of the cars would dissolve the partnership by operation of law.
  C. Yes, because National had a valid judgement against Fil.
  D. Yes, because Fil's interest in the partnership inventory is an asset owned by Fil.
  A. No, because the judgement was not against the partnership.

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  Choice "a" is correct. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt. Choice "b" is incorrect. There is no such rule. If the partnership were liable for the individual partner's debt, the cars could be attached and the partnership would not be dissolved. Choice "c" is incorrect. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt. Choice "d" is incorrect. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt.

• Question 344:

  Which of the following is not an attestation standard?

  A. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report.
  B. The report shall identify the assertion being reported on and state the character of the engagement.
  C. The work shall be adequately planned and assistants, if any, shall be properly supervised.
  D. A sufficient understanding of internal control shall be obtained to plan the engagement.
  D. A sufficient understanding of internal control shall be obtained to plan the engagement.

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  Choice "d" is correct. A sufficient understanding of internal control is not required to be obtained in an attestation engagement. Choice "a" is incorrect. In an attestation engagement, sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report. Choice "b" is incorrect. An attestation report should identify the assertion being reported on and state the character of the engagement. Choice "c" is incorrect. In an attestation engagement, the work should be adequately planned and assistants, if any, should be properly supervised.

• Question 345:

  The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:

  A. Not believe that the bank is obligated to verify confidential information to a third party.
  B. Sign and return the form without inspecting the accuracy of the client's bank reconciliation.
  C. Not have access to the client's cutoff bank statement.
  D. Be unaware of all the financial relationships that the bank has with the client.
  D. Be unaware of all the financial relationships that the bank has with the client.

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  Choice "d" is correct. A bank employee may not have access to all information about transactions with the audit client and thus may be unaware of all the financial relationships the bank has with the client. Choice "a" is incorrect. Standard bank confirmations contain a signature from an authorized client employee and are a very commonly used audit procedure. It is unlikely that a bank would refuse the request since it has been authorized by the client. Choice "b" is incorrect. The confirmation is used to verify the bank balance as of year-end. Bank employees generally would not have access to the client's bank reconciliation. Choice "c" is incorrect. Even though it is likely that the bank would have access to a cutoff bank statement, the detail on this statement is unnecessary to confirm the final balance.

• Question 346:

  In considering the payback period for three projects, ABC Corp. gathered the following data about cash flows:

  

  Which of the projects will achieve payback within three years?

  A. Projects A, B, and C.
  B. Projects B and C.
  C. Project B only.
  D. Projects A and C.
  B. Projects B and C.

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  Choice "b" is correct. Projects B and C achieve payback in three years. The payback period for Project A is somewhere between the end of Year 4 and Year 5. For all three projects, Year 1 appears to be a combination of cash outflows (initial cost) and cash inflows (return of investment), but it really does not make any difference. When the cumulative cash flow (both inflow and outflow) is zero, the project has paid back. Choice "a" is incorrect. Project A does not pay back within 3 years even though Projects B and C do. Choice "c" is incorrect. Projects B and C, not just Project B, pay back within 3 years. Choice "d" is incorrect. Project A does not pay back within 3 years even though Project C does.

• Question 347:

  Under the Revised Model Business Corporation Act, following what type of corporate acquisition does the acquiring corporation automatically become liable for all obligations of the acquired corporation?

  A. A leveraged buyout of assets.
  B. An acquisition of stock for debt securities.
  C. A cash tender offer.
  D. A merger.
  D. A merger.

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  Choice "d" is correct. A merger involves one corporation joining with another corporation. The surviving corporation has all of the rights and liabilities of the merged corporation. Thus, the acquiring corporation automatically becomes liable for all obligations of the acquired corporation. Choice "a" is incorrect. A leveraged buyout is a strategy involving the acquisition of another corporation using a significant amount of borrowed money (bonds or loans). Often, the assets of the corporation being acquired are used as collateral for the loans (in addition to the assets of the acquiring corporation). The acquiring corporation does not automatically become liable for all (or any) obligations of the acquired corporation if it merely acquires another corporation's assets. Choice "b" is incorrect. An acquisition of stock for debt securities does not make the acquiring corporation liable for the obligations of the acquired corporation. The acquiring corporation has simply purchased stock. In an acquisition of stock for debt securities, the acquired corporation becomes a subsidiary of the acquiring corporation and the acquired corporation remains a separate entity liable for its own obligations. Choice "c" is incorrect. A cash tender offer is an offer to purchase a corporation's stock directly from its shareholders at a specified price for a specified period of time. In a cash tender offer, the acquiring corporation does not automatically become liable for all obligations of the acquired corporation. In fact, if there is only an offer, there is no transaction at all.

• Question 348:

  Silver, CPA, has been hired by ABC Co., a publicly held company, to conduct a review of its interim financial information. While performing review procedures, Silver becomes aware of a significant change in the control activities at one of ABC's branch locations. Which of the following might Silver consider performing in response to this situation?

  A. Making additional inquiries, such as whether management has monitored the changes and considered whether they were operating as intended.
  B. Employing analytical procedures with a less precise expectation.
  C. Both "a" and "b" above.
  D. Neither "a" nor "b" above.
  A. Making additional inquiries, such as whether management has monitored the changes and considered whether they were operating as intended.

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  Choice "a" is correct. An accountant's knowledge of an entity's business and its internal control influences the inquiries made and analytical procedures performed. A significant change in control activities would likely result in further inquiry of management. Choice "b" is incorrect. An accountant's knowledge of an entity's business and its internal control influences the inquiries made and analytical procedures performed. A significant change in control activities would likely result in the accountant employing analytical procedures with a more precise expectation, since more precise expectations are more effective at detecting misstatements. Choices "c" and "d" are incorrect. Only choice "a" is correct, as explained above.

• Question 349:

  Because of the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor should obtain written management representations acknowledging that management has:

  A. Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.
  B. Implemented internal controls designed to detect all illegal acts.
  C. Expressed both positive and negative assurance to the auditor that the entity complied with all laws and regulations.
  D. Employed internal auditors who can report their findings, opinions, and conclusions objectively without fear of political repercussion.
  A. Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.

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  Choice "a" is correct. The auditor should obtain written representation that management has disclosed all laws and regulations that have a direct and material effect on its financial statements. Choice "b" is incorrect. Management need not acknowledge that it has implemented internal control activities to detect all illegal acts. Choice "c" is incorrect. Management should state that it is responsible for compliance with all laws and regulations. Choice "d" is incorrect. Management need not employ internal auditors.

• Question 350:

  ABC Inc. is planning to use retained earnings to finance anticipated capital expenditures. The beta coefficient for ABC's stock is 1.15, the risk-free rate of interest is 8.5 percent, and the market return is estimated at 12.4%. If a new issue of common stock was used in this model, the flotation costs would be 7%. By using the Capital Asset Pricing Model equation C = R + B (M - R), the cost of using retained earnings to finance the capital expenditures is:

  A. 13.96 percent.
  B. 12.99 percent.
  C. 14.26 percent.
  D. 13.21 percent.
  B. 12.99 percent.

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  Choice "b" is correct. The capital asset pricing model (CAPM) is: