AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 441:

  Lisa is a limited partner in a limited partnership. Jen, one of the other limited partners, is seeking to sell her interest in the partnership to Karen and allow Karen to become a new limited partner. Which of the following statements is true?

  A. Lisa may engage in the management of the limited partnership without losing her limited liability.
  B. Jen may transfer her interest and make Karen a new limited partner without the approval of the other partners.
  C. Jen may withdraw from the limited partnership without giving notice to the partnership.
  D. Lisa has a right to vote on the transferring of interest to and admission of Karen as a limited partner.
  D. Lisa has a right to vote on the transferring of interest to and admission of Karen as a limited partner.

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  Choice "d" is correct. Limited partners have the right to vote on the transfer of interest and admission of a new partner. Admission of a new partner requires unanimous consent. Choice "a" is incorrect. A limited partner who acts as a general partner loses her limited liability status to those she acted as a general partner towards. Choice "b" is incorrect. Partners can freely transfer their interests in profits and losses to third parties, but the third party cannot become a limited partner without the unanimous consent of the other partners. Choice "c" is incorrect. Limited partners must give 6 months notice of withdrawal in absence of an agreement to the contrary.

• Question 442:

  Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?

  A. It is usually more difficult to detect transposition errors.
  B. Transactions are usually authorized before they are executed and recorded.
  C. It is usually easier for unauthorized persons to access and alter the files.
  D. Random error associated with processing similar transactions in different ways is usually greater.
  C. It is usually easier for unauthorized persons to access and alter the files.

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  Choice "c" is correct. Microcomputer systems are sometimes characterized by weak file and data security, and are usually accessible by many office personnel. (Manual systems, in contrast, generally restrict one user from accessing other users' files.) Thus, it is usually easier (increased risk) for unauthorized persons to access and alter computer system files, especially microcomputer system files. Choice "a" is incorrect. No difference exists between manual and computer-based systems for detecting transposition errors. Choice "b" is incorrect. Transactions should always be authorized before they are executed and recorded, in both manual and computer-based systems. Choice "d" is incorrect. Because computer-based processing imposes strict rules on input and processing, generally there are fewer random processing errors.

• Question 443:

  Which of the following is not considered a factor that increases the bargaining power of the customer?

  A. Much information is available to the customer to compare and contrast features of all products on the market.
  B. One group of customers makes up a large volume of the firm's business.
  C. Strategic alliances have been formed with suppliers and other firms.
  D. Several alternate suppliers (sellers) of the product exist.
  C. Strategic alliances have been formed with suppliers and other firms.

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  Choice "c" is correct. When strategic alliances exist between a supplier and other firms that is a situation, which increases the bargaining power of the suppliers. Choices "a", "b", and "d" are incorrect because they all are factors that increase the bargaining power of the customer, which are: ?Customers make up a large volume of a firm's business. ?There is much information available to customers. ?The buyers have low switching costs. ?There are a high number of alternate suppliers (sellers) of the product.

• Question 444:

  Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

  A. Review the cut-off bank statements for the period after the year-end.
  B. Inquire of the client's legal counsel concerning litigation.
  C. Investigate significant deficiencies in internal control previously communicated to the client.
  D. Analyze related party transactions to discover possible irregularities.
  B. Inquire of the client's legal counsel concerning litigation.

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  Choice "b" is correct. An auditor would most likely obtain a letter from the entity's legal counsel describing any pending litigation, unasserted claims, or loss contingencies, to obtain evidence that might impact the year-end financial statements. Choice "a" is incorrect. Reviewing cut-off bank statements for the period after year-end generally is performed to evaluate the year-end cash balance, not to identify subsequent events. Choice "c" is incorrect. Investigating significant deficiencies in internal control previously communicated to the client would be a procedure performed as part of the planning process and would provide the auditor with information regarding the internal control structure, not subsequent events. Choice "d" is incorrect. Analyzing related party transactions to discover possible irregularities generally is performed to evaluate financial statement disclosure, not to identify subsequent events.

• Question 445:

  If the demand for a normal good is inelastic, then the sales price of the product would increase following a (n):

  A. Decrease in the price of a substitute good.
  B. Increase in the supply of the product.
  C. Decrease in the supply of the product.
  D. Increase in the number of suppliers of the product.
  C. Decrease in the supply of the product.

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  Choice "c" is correct. If demand is perfectly inelastic (or not price sensitive), there will be no change in quantity demanded for a change in price. This means that consumers of the product will demand a constant quantity, regardless of the price. If the quantity supplied is reduced (presumably below an equilibrium point where supply equals demand), there will be excess demand for the product and sales price will go up. The increase in sales price will have no impact on demand (because demand is assumed to be perfectly price inelastic). Choices "a", "b", and "d" are incorrect, per the above Explanation.

• Question 446:

  Which of the following pairs of accounts would be analyzed together in the audit documentation?

  A. Notes receivable and interest income.
  B. Accrued interest receivable and accrued interest payable.
  C. Notes payable and notes receivable.
  D. Interest income and interest expense.
  A. Notes receivable and interest income.

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  Choice "a" is correct. The auditor would most likely analyze notes receivable and its related income statement account, interest income, together. Choice "b" is incorrect. Accrued interest payable would be analyzed along with notes payable; accrued interest receivable would be analyzed along with notes receivable. Choice "c" is incorrect. Notes payable would be analyzed along with interest payable and interest expense; notes receivable would be analyzed along with interest income. Choice "d" is incorrect. Interest income would be analyzed with notes receivable; interest expense would be analyzed with notes payable.

• Question 447:

  ABC, Inc. is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described below, the company can sell unlimited amounts of all instruments.

  ?ABC can raise cash by selling $1,000, 8 percent, 20-year bonds with annual interest payments. In selling the issue, an average premium of $30 per bond would be received, and the firm must pay floatation costs of $30 per bond. The after-

  tax cost of funds is estimated to be 4.8 percent. ?ABC can sell 8 percent preferred stock at par value, $105 per share. The cost of issuing and selling the preferred stock is expected to be $5 per share.

  ?ABC' common stock is currently selling for $100 per share. The firm expects to pay cash dividends of $7 per share next year, and the dividends are expected to remain constant. The stock will have to be underpriced by $3 per share, and

  floatation costs are expected to amount to $5 per share. ?ABC expects to have available $100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of

  common stock equity financing.

  ?ABC' preferred capital structure is:

  Long-term debt 30%

  Preferred stock 20

  Common stock 50

  The cost of funds from retained earnings for ABC, Inc. is:

  A. 7.0 percent.
  B. 7.4 percent.
  C. 8.1 percent.
  D. 7.8 percent.
  A. 7.0 percent.

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  Choice "a" is correct. 7.0 percent cost of funds from retained earnings. The cost of retained earnings is equal to the rate of return required by the firm's common shareholders (or, in effect, the return "lost" by them when the firm chooses to fund with retained earnings). While oftentimes this rate is somewhat subjective, we are given the facts to exactly answer the question in this case. The stock is currently selling for $100/share, and the dividend is given at $7/share. $7 / $100 = 7% Choices "b", "c", and "d" are incorrect, per the above Explanation/calculation.

• Question 448:

  The cumulative effect of a change in accounting estimate should be shown separately:

  A. On the income statement above income from continuing operations.
  B. On the income statement after income from continuing operations and before extraordinary items.
  C. On the retained earnings statement as an adjustment to the beginning balance.
  D. It should not be recorded separately on any financial statement.
  D. It should not be recorded separately on any financial statement.

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  Choice "d" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary. Choices "a", "b", and "c" are incorrect, per the above explanation.

• Question 449:

  This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment.

  Select, as the best answer for each item, the most likely source. Select only one source for each item.

  There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.

  A. Practitioner's report on management's assertion about an entity's compliance with specified requirements.
  B. Auditor's communications on significant deficiencies in internal control.
  C. Audit inquiry letter to legal counsel.
  D. Lawyer's response to audit inquiry letter.
  E. Communication from those charged with governance to the auditor.
  F. Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control).
  G. Report on the application of accounting principles.
  H. Auditor's engagement letter.
  I. Letter for underwriters.
  J. Accounts receivable confirmation request. K. Request for bank cutoff statement. L. Explanatory paragraph of an auditor's report on financial statements. M. Partner's engagement review notes. N. Management representation letter. O. Successor auditor's communication with predecessor auditor. P. Predecessor auditor's communication with successor auditor.
  N

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  Choice "N" is correct. Management's statement that there have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices provides information regarding the completeness of information, and would be included in the management representation letter.

• Question 450:

  The CPI jumps from 131 in year 1 to 136.5 in year 2. What is annual inflation rate?

  A. 4.2%
  B. 3%
  C. 1.38%
  D. 13.8%
  A. 4.2%

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  Choice "a" is correct. The inflation rate is measured as: