AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 381:

  An accountant's standard report issued after compiling the financial statements of a nonissuer should state that:

  A. I am not aware of any material modifications that should be made to the accompanying financial statements.
  B. A compilation consists principally of inquiries of company personnel and analytical procedures.
  C. A compilation is limited to presenting in the form of financial statements information that is the representation of management.
  D. A compilation is substantially less in scope than an audit in accordance with GAAS, the objective of which is the expression of an opinion.
  C. A compilation is limited to presenting in the form of financial statements information that is the representation of management.

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  Choice "c" is correct. An accountant's standard report issued after compiling the financial statements of a nonissuer should state that "a compilation is limited to presenting in the form of financial statements information that is the representation of management." Choice "a" is incorrect. A review report (and not a compilation report) states that, "I am not aware of any material modifications that should be made to the accompanying financial statements." Choice "b" is incorrect. A review report (and not a compilation report) states that a review "consists principally of inquiries of company personnel and analytical procedures." Choice "d" is incorrect. A review report (and not a compilation report) states that a review "is substantially less in scope than an audit in accordance with GAAS, the objective of which is the expression of an opinion."

• Question 382:

  At the peak of a business cycle:

  A. Output (real GDP) tends to be below the potential level of output.
  B. There is likely to be an excess supply of labor and business inventories are likely to be high.
  C. The overall price level is likely to be falling.
  D. Capacity constraints and labor shortages are likely to put upward pressure on the overall price level.
  D. Capacity constraints and labor shortages are likely to put upward pressure on the overall price level.

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  Choice "d" is correct. The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level. Choice "a" is incorrect. Real GDP is likely to be above, not below, its potential level. Choice "b" is incorrect. Business inventories are likely to be low, not high, and there is likely to be excess demand for labor not an excess supply of labor. Choice "c" is incorrect. The overall price level is likely to be rising not falling.

• Question 383:

  Which of the following securities are corporate debt securities?

  

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

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  Choice "c" is correct. Rules: Bonds are debt securities. Thus, convertible bonds and debenture bonds are debt securities. A warrant is a contractual right to purchase stock, which constitutes a share of corporate equity. Choices "a", "b", and "d" are incorrect, per the above rules.

• Question 384:

  A natural monopoly exists because:

  A. The firm owns natural resources.
  B. Economic and technical conditions permit only one efficient supplier.
  C. The government is the only supplier.
  D. Other firms are unable to enter the industry.
  B. Economic and technical conditions permit only one efficient supplier.

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  Choice "b" is correct. A natural monopoly exists when economic and technical conditions permit only one efficient supplier. Choice "a" is incorrect. Owning natural resources, even if they are unique, would not create a monopoly. Substitutes for the resource may be available. Choice "c" is incorrect. Government control may create a monopoly, but not a natural monopoly. This is a regulated monopoly. Choice "d" is incorrect. Barriers to entry help create a monopoly, but the product must be unique.

• Question 385:

  What effect would the sale of a company's trading securities at their carrying amounts for cash have on each of the following ratios?

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

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  Choice "a" is correct. Trading securities are both current assets and quick assets. If they are sold for their carrying value, then both total current assets and total quick assets remain constant since one type of current asset and quick asset is traded for another. Thus, both the current ratio and the quick ratio would be unaffected by the sale of trading securities. Choices "b", "c", and "d" are incorrect, per the above .

• Question 386:

  Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

  A. Inspecting title documents to verify whether any assets are pledged as collateral.
  B. Confirming with third parties the details of arrangements to maintain financial support.
  C. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
  D. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.
  B. Confirming with third parties the details of arrangements to maintain financial support.

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  Choice "b" is correct. Confirming with third parties the details of arrangements to provide or "maintain (needed) financial support" is an audit procedure that may identify doubts about an entity's ability to continue as a going concern. Choice "a" is incorrect. Inspecting title documents provides evidence of ownership of assets but would not necessarily identify conditions affecting an entity's ability to continue as a going concern. Choice "c" is incorrect. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation provides evidence of completeness and valuation, but would not necessarily identify conditions affecting an entity's ability to continue as a going concern. Choice "d" is incorrect. Comparing an entity's policies to other entities in the industry would not necessarily identify conditions affecting an entity's ability to continue as a going concern.

• Question 387:

  A general partnership must:

  A. Pay federal income tax.
  B. Have two or more partners.
  C. Have written articles of partnership.
  D. Provide for apportionment of liability for partnership debts.
  B. Have two or more partners.

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  Choice "b" is correct. A partnership is an organization of two or more persons who carry on a business for a profit. Choice "a" is incorrect. Partnerships do not pay federal income taxes; the partners report their shares of the partnership's income on their individual returns. Choice "c" is incorrect. A partnership agreement need not be in writing. Choice "d" is incorrect. If the partnership agreement is silent on the apportionment of liability for partnership debts, state law or the Uniform Partnership Act will cover the omission.

• Question 388:

  On August 31, 1992, ABC Co. decided to change from the FIFO periodic inventory system to the weighted average periodic inventory system. ABC is on a calendar year basis. The cumulative effect of the change is determined:

  A. As of January 1, 1992.
  B. As of August 31, 1992.
  C. During the eight months ending August 31, 1992, by a weighted average of the purchases.
  D. During 1992 by a weighted average of the purchases.
  A. As of January 1, 1992.

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  Rule: The cumulative effect of a change in accounting principle equals the difference between retained earnings at the beginning of period of the change and what retained earnings would have been if the change was applied to all affected prior periods. Choice "a" is correct. As of January 1, 1992, the beginning of the year. This assumes that the company is not presenting comparative financial statements. If comparative financial statements are presented, then the adjustment is made to the beginning retained earnings of the earliest year presented. Choice "b" is incorrect. The cumulative effect of the change is not determined as of the date the decision is made. Choices "c" and "d" are incorrect. The cumulative effect of the change is not determined by a weighted average.

• Question 389:

  The internal rate of return (IRR) is the:

  A. Hurdle rate.
  B. Rate of interest where the net present value is greater than 1.0.
  C. Rate of interest where the net present value is equal to zero.
  D. Rate of return generated from the operational cash flows.
  C. Rate of interest where the net present value is equal to zero.

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  Explanation Explanation/Reference:Choice "c" is correct. IRR is the rate of interest where the NPV is zero. Choice "a" is incorrect. The hurdle rate is a desired or minimum rate of return, set by management, to evaluate investments. Choice "b" is incorrect. NPV will be greater than zero when the IRR is higher than the hurdle rate. Choice "d" is incorrect. IRR is the rate of return of all cash flows produced by the investment.

• Question 390:

  A period during which real GDP is rising and unemployment is falling is called a(n):

  A. Recession.
  B. Peak.
  C. Expansion.
  D. Trough.
  A. Recession.

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  Choice "c" is correct. During an expansion, real GDP is rising and unemployment is falling. Choice "a" is incorrect. A recession is when real GDP is falling NOT rising. Choice "b" is incorrect. A peak is the highest point of economic activity. It is the point where real GDP is at its highest level in the cycle and unemployment is at its lowest level in the cycle. Choice "d" is incorrect. A trough is the lowest level of economic activity. It is the point where real GDP is at its lowest level in the cycle and unemployment is at its highest level in the cycle.