AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 471:

  Acorn and Bean were general partners in a farm machinery business. Acorn contracted, on behalf of the partnership, to purchase 10 tractors from ABC Corp. Unknown to ABC, Acorn was not authorized by the partnership agreement to make such contracts. Bean refused to allow the partnership to accept delivery of the tractors and ABC sought to enforce the contract. ABC will:

  A. Lose because Acorn's action was beyond the scope of Acorn's implied authority.
  B. Prevail because Acorn had implied authority to bind the partnership.
  C. Prevail because Acorn had apparent authority to bind the partnership.
  D. Lose because Acorn's express authority was restricted, in writing, by the partnership agreement.
  C. Prevail because Acorn had apparent authority to bind the partnership.

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  Choice "c" is correct. A general partner has apparent authority to bind the partnership and other partners in respect to all ordinary transactions within the apparent scope of the partnership business. A farm machinery business probably regularly purchases tractors. Thus, there was apparent authority here. Choices "a" and "b" are incorrect. Implied authority is authority that an agent reasonably believes he or she was given by the principal along with any express authority. Because Acorn knew that he did not have express authority to make the contracts here, he could not reasonably believe that he had implied authority to do so. Choice "d" is incorrect. The seller was not aware of Acorn's lack of express authority. Therefore, ABC relied on Acorn's apparent authority.

• Question 472:

  Gail is auditing the financial statements of ABC, a publicly held company. Gail notes several deficiencies in internal control, and is trying to determine whether each deficiency constitutes a significant deficiency or a material weakness. Which best describes the framework Gail should use in making this evaluation?

  A. A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.
  B. A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement.
  C. A significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is a reasonable possibility of material misstatement.
  D. A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is more than a remote chance of a material misstatement.
  A. A significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.

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  Choice "a" is correct. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement. Choice "b" is incorrect. For nonissuers, a significant deficiency exists when there is more than a remote chance of a more than inconsequential misstatement, and a material weakness exists when there is more than a remote chance of a material misstatement. However, ABC is an issuer, so different rules apply. Choice "c" is incorrect. For issuers, a significant deficiency exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting. Choice "d" is incorrect. For issuers, a material weakness exists when there is a reasonable possibility of material misstatement.

• Question 473:

  To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would:

  A. Perform tests of details of transactions and balances.
  B. Review prior-year audit documentation and the permanent file for the client.
  C. Read specialized industry journals.
  D. Reevaluate the client's internal control environment.
  B. Review prior-year audit documentation and the permanent file for the client.

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  Choice "b" is correct. Knowledge of an entity's business is ordinarily obtained through experience with the entity or its industry and inquiry of personnel of the entity. Audit documentation from prior years may contain useful information about the nature of the business, its organizational structure, its operating characteristics, and transactions that may require special consideration. Choice "a" is incorrect. Tests of details of transactions and balances are not performed during the planning stage of an audit. Choice "c" is incorrect. Reading industry journals would provide information about the industry in which the entity operates, but reviewing prior-year audit documentation and the permanent file would provide a more thorough understanding of the specific client's business. Choice "d" is incorrect. The client's internal control is not reevaluated during the planning stage of an audit.

• Question 474:

  In 1990, ABC Corp., a closely held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock. Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held. For this question refer to the formation of ABC Corp. and the rights and duties of its stockholders, directors, and officers.

  A. Adams, Frank, and Berg must be elected as directors because they own 55% of the issued and outstanding stock.
  B. Adams, Frank, and Berg must always be elected as officers because they own 55% of the issued and outstanding stock.
  C. Adams, Frank, and Berg must always vote for each other as directors because they have a voting agreement.
  C. Adams, Frank, and Berg must always vote for each other as directors because they have a voting agreement.

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  Choice "c" is correct. Shareholders in a voting agreement must vote their shares in accordance with the agreement. There is no requirement that majority shareholders be elected as directors or officers. Business Cycles and Reasons for Business Fluctuations

• Question 475:

  When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an):

  A. Regulation S-X exemption.
  B. Report on pro forma financial statements.
  C. Unaudited association report.
  D. Disclaimer of opinion.
  D. Disclaimer of opinion.

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  Choice "d" is correct. When an accountant is associated with the financial statements of a public entity, but has not audited or reviewed such statements, the accountant must issue a report disclaiming any opinion on the statements. Choices "a", "b", and "c" are incorrect since a disclaimer is required in this case.

• Question 476:

  An auditor would express an unqualified opinion with an explanatory paragraph added to the auditor's report for:

  

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

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  Choice "d" is correct. An unjustified accounting change may cause the auditor to issue a qualified or adverse opinion. A material weakness must be reported to management and those charged with governance, but would not be disclosed in an explanatory paragraph appended to an otherwise unqualified opinion. Choices "a", "b", and "c" are incorrect, as per the above explanation.

• Question 477:

  Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom's dependent.

  Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994 Form 1040.

  The Moores received $8,400 in gross receipts from their rental property during 1994. The expenses for the residential rental property were:

  A. $0
  B. $500
  C. $900
  D. $1,000
  E. $1,250
  F. $1,300
  G. $1,500
  H. $2,000
  I. $2,500
  J. $3,000 K. $10,000 L. $25,000 M. $50,000 N. $55,000 O. $75,000
  I. $2,500

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  "I" is correct. $2,500. Rental activity net income is reported on page one; the gross income ($8,400) is fully reportable; and all deductions listed (total = $5,900) are fully deductible for a net of $2,500.

• Question 478:

  In ABC Food Co.'s 1990 single-step income statement, the section titled "Revenues" consisted of the following:

  

  In the revenues section of its 1990 income statement, ABC Food should have reported total revenues of:

  A. $216,300
  B. $215,400
  C. $203,700
  D. $201,900
  D. $201,900

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  Explanation Explanation/Reference:Choice "d" is correct. $201,900. The various amounts from discontinued operations should be included in discontinued operations, not in revenues.

• Question 479:

  What is the purpose of information presented in notes to the financial statements?

  A. To provide disclosures required by generally accepted accounting principles.
  B. To correct improper presentation in the financial statements.
  C. To provide recognition of amounts not included in the totals of the financial statements.
  D. To present management's responses to auditor comments.
  A. To provide disclosures required by generally accepted accounting principles.

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  Choice "a" is correct. Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles.

• Question 480:

  Which of the following parties generally has the most management rights?

  A. Minority shareholder in a corporation listed on a national stock exchange.
  B. Limited partner in a general partnership.
  C. Member of a limited liability company.
  D. Limited partner in a limited partnership.
  C. Member of a limited liability company.

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  Choice "c" is correct. Unless the articles or operating agreement provides otherwise, all members of the LLC have a right to participate in management. A member of a limited liability company has the most management rights of any of the parties listed. A minority shareholder in a corporation has no management rights (and neither does a majority shareholder). A limited partner has no day-to-day management rights but may have some rights in extraordinary circumstances. It is unclear what a limited partner in a general partnership would even be; the existence of a limited partner would make a partnership a limited partnership and not a general partnership. Choice "a" is incorrect. Stockholders have very limited rights to run the corporation. They generally only have the right to elect directors and to vote on fundamental changes in the corporation. Such fundamental changes would include dissolutions, amendments to the articles, mergers, consolidations, compulsory share exchanges, and sale of substantially all of the corporation's assets. Choice "b" is incorrect. There are no limited partners in a general partnership. There are only general partners. Since there are no limited partners, there are no management rights for limited partners. Choice "d" is incorrect. Limited partners in a limited partnership have very limited rights to participate in the management of the business. In fact, if they do participate in management, they face potential liability to those who thought they were a general partner (i.e., if a limited partner becomes involved in day-to-day management is some way (participating in control), she may be treated as a general partner and lose her limited liability).