AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 401:

  Having identified their mission, overall strategy, and critical success factors, organizations often review the internal and external factors that will contribute to their success. This analysis is often referred to as:

  A. TOC evaluation.
  B. Brainstorming.
  C. Balanced scorecard review.
  D. SWOT analysis.
  D. SWOT analysis.

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  Choice "d" is correct. Evaluation of internal and external factors contributing to an organization's success is referred to as Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. Strengths and weaknesses focus on internal factors while opportunities and threats relate to external factors. Choice "a" is incorrect. The acronym TOC stands for Theory of Constraints, which is an evaluation technique for optimizing throughput time, it does not relate to overall strategy evaluation. Choice "b" is incorrect. Brainstorming is a meeting technique used to generate ideas. Although brainstorming could be used as part of an organization's approach to SWOT analysis, it is not, itself, the evaluation of internal and external factors. Choice "c" is incorrect. A review of the balanced scorecard, which summarizes measures of achievement of critical success factors, does not represent the objective review of internal and external factors that may impact achievement of strategy.

• Question 402:

  Which of the following professional services would be considered an attestation engagement?

  A. Advocating on behalf of a client about trust tax matters under review by the Internal Revenue Service.
  B. Providing financial analysis, planning, and capital acquisition services as a part-time, in-house controller.
  C. Advising management in the selection of a computer system to meet business needs.
  D. Preparing the income statement and balance sheet for one year in the future based on client expectations and predictions.
  D. Preparing the income statement and balance sheet for one year in the future based on client expectations and predictions.

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  Choice "d" is correct. Preparing future financial statements constitutes a compilation of prospective financial statements, which is considered to be an attestation service. Choices "a" and "c" are incorrect. Attestation engagements specifically exclude advocacy services and consulting services. Choice "b" is incorrect. Attest engagements include those in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party, as well as engagements related to prospective financial statements. Performing the role of in-house controller part-time does not fit into any of these categories.

• Question 403:

  The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported:

  A. By restating the financial statements of all prior periods presented.
  B. As a correction of an error.
  C. As a component of income from continuing operations, in the period of change and future periods if the change affects both.
  D. As a separate disclosure after income from continuing operations, in the period of change and future periods if the change affects both.
  C. As a component of income from continuing operations, in the period of change and future periods if the change affects both.

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  Choice "c" is correct. A change in accounting principle that is inseparable from a change in accounting estimate should now be reported as a change in estimate and thus as a component of income from continuing operations, in the period of change and future periods if the change affects both. Distinguishing between a change in accounting principle and a change in accounting estimate is sometimes difficult. For example, a company may change from deferring and amortizing a cost to recording it as an expense when incurred because future benefits of the cost have become doubtful. The new accounting method is adopted, therefore, in partial or complete recognition of the change in estimated future benefits. The effect of the change in principle is inseparable from the effect of the change in estimate. Changes of this type are often related to the continuing process of obtaining additional information and revising estimates and are therefore considered as changes in estimates. Choice "a" is incorrect. Restating the financial statements of all prior periods would be done in the case of prior period adjustments (corrections of errors), changes in accounting principle (retrospective application), and changes in accounting entity (retrospective application). Choice "b" is incorrect. Correction of an error would be treated as a prior period adjustment. Choice "d" is incorrect. Separate disclosure after income from continuing operations would be done in the case of extraordinary items or discontinued operations. However, this disclosure would not be made "in the period of change and future periods if the change affects both" but only in the period of the extraordinary item or discontinued operation.

• Question 404:

  The financial statements of ABC company, a U.S. entity, are prepared for inclusion in the consolidated financial statements of its non-U.S. parent. These financial statements are prepared in conformity with the accounting principles generally accepted in the parent's country and are for use only in that country. How may ABC company's auditor report on these financial statements?

  A. A U.S.-style report (unmodified). II. A U.S.-style report modified to report on the accounting principles of the parent's country. III. The report form of the parent's country.
  B. Option A
  C. Option B
  D. Option C
  E. Option D
  D. Option C

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  Choice "d" is correct. No - Yes - Yes. When financial statements are prepared in conformity with the accounting principles generally accepted in the parent's country and are for use only in that country, the auditor may report using either a U.S.-style report modified to report on the accounting principles of the parent's country or the report form of the parent's country. Choices "a", "b", and "c" are incorrect, per the above explanation.

• Question 405:

  ABC Co. is a publicly-traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?

  A. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues.
  B. The identity of any external customer providing 10% or more of a particular operating segment's revenue.
  C. The identity of any external customer considered to be "major" by management.
  D. Information on major customers is not required in segment reporting.
  A. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues.

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  Choice "a" is correct. In order to conform to GAAP, financial statements for public business enterprises must report segment information about a company's major customers if that customer provides 10% or more of the combined revenue, internal and external, of all operating segments. Choice "b" is incorrect. Revenue is 10% of ALL operating segments not "a particular" segment. Choice "c" is incorrect. Disclosure is not at management's discretion. Choice "d" is incorrect. Disclosure is required.

• Question 406:

  An accountant's report on a review of pro forma financial information should include a:

  A. Statement that the entity's internal control was not relied on in the review.
  B. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived.
  C. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur.
  D. Reference to the financial statements from which the historical financial information is derived.
  D. Reference to the financial statements from which the historical financial information is derived.

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  Choice "d" is correct. The accountant's report on a review of pro forma financial information should include a reference to the financial statements from which the historical information is derived and a statement as to whether such financial statements were audited or reviewed. Choice "a" is incorrect. No statement on the entity's internal control is necessary. Choice "b" is incorrect. If the auditor has audited the financial statements from which the pro forma financial information is derived, an opinion on those statements may be expressed. Choice "c" is incorrect. The report on a review of pro forma financial information would include an of the objective and limitations of the information, but would not discuss the uncertainty surrounding occurrence of the transaction or event.

• Question 407:

  An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

  A. Test of transactions.
  B. Analytical procedures.
  C. Test of controls.
  D. Test of details.
  B. Analytical procedures.

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  Choice "b" is correct. Analytical procedures are evaluations of financial information made by a study of plausible relationships among data, and they include comparisons between current year and prior year financial information. Choice "a" is incorrect. Tests of transactions involve selecting specific transactions and evaluating whether they were properly recorded. Comparing current year and prior year gross margin would not provide information regarding specific transactions. Choice "c" is incorrect. Tests of controls are performed to evaluate the effectiveness of controls. Comparing current year and prior year gross margin would not provide information regarding controls. Choice "d" is incorrect. Test of details are audit procedures used to gather evidence to support specific account balances. Comparing current year and prior year gross margin does not provide much information regarding specific account balances, although it might identify an account balance worthy of further consideration.

• Question 408:

  Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Lark's interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission to the partnership, Ward:

  A. Acquired only the right to receive Ward's share of DSJ profits.
  B. Has the right to participate in DSJ's management.
  C. Is personally liable for partnership liabilities arising before and after being admitted as a partner.
  D. Must contribute cash or property to DSJ to be admitted with the same rights as the other partners.
  B. Has the right to participate in DSJ's management.

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  Choice "b" is correct. The general rule is that the mere assignment of a partner's interest does not make the assignee a partner. One may become a partner only with the consent of all other partners. Here, all other partner's consented to Ward's becoming a partner. Thus, Ward is a partner with full rights to participate in management. Choice "a" is incorrect. The general rule is that the mere assignment of a partner's interest does not make the assignee a partner. One may become a partner only with the consent of all other partners. Here, all other partner's consented to Ward's becoming a partner. Thus, Ward is a partner with full partner rights. Choice "c" is incorrect. An incoming partner is not liable for debts that the partnership incurred before admission beyond the incoming partner's contribution, but is fully liable for debts incurred after becoming a partner. Choice "d" is incorrect. A partnership is a consensual relationship; there is no requirement of a contribution to become a partner.

• Question 409:

  Which one of the following would increase the working capital of a firm?

  A. Purchase of a new plant financed by a 20-year mortgage.
  B. Cash collection of accounts receivable.
  C. Payment of a 20-year mortgage payable with cash.
  D. Refinancing a short-term note payable with a two-year note payable.
  D. Refinancing a short-term note payable with a two-year note payable.

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  Choice "d" is correct. Refinancing a short-term note payable with a two-year note payable would increase the working capital of a firm. Choice "a" is incorrect. The purchase of a new plant (fixed asset) financed by a 20-year mortgage (long term debt with a one-year current portion) would reduce working capital because current liabilities would be increased. Choice "b" is incorrect. The cash collection of accounts receivable has no effect on working capital-cash increases by the amount that A/R decreases. Choice "c" is incorrect. The payment of a 20-year mortgage payable (long-term debt) would reduce cash and have no effect on current liabilities, thereby reducing working capital.

• Question 410:

  By using the discounted cash flow model, estimate the cost of equity capital for a firm with a stock price of $30.00, an estimated dividend at the end of the first year of $3.00 per share, and an expected growth rate of 10 percent.

  A. 21.1 percent.
  B. 12.2 percent.
  C. 11.0 percent.
  D. 20.0 percent.
  D. 20.0 percent.

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  Choice "d" is correct. 20.0 percent cost of equity capital by using the discounted cash flow model.