AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 481:

  Under the uniform capitalization rules applicable to taxpayers with property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions have been met?

  

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

  ---

  Choice "a" is correct. Direct material, direct labor, and factory overhead (applicable indirect costs) are capitalized with respect to inventory under the uniform capitalization rules for property acquired for resale. Applicable indirect costs include depreciation and amortization, insurance, supervisory wages, utilities, spoilage and scrap, design expenses, repair and maintenance and rental of equipment and facilities (including offsite storage), some administrative costs, costs of bonus and other incentive plans, and indirect supplies and other materials (including repackaging costs). Choices "b", "c", and "d" are incorrect, per the above discussion.

• Question 482:

  In an audit of an issuer:

  A. Management must assess and report on internal control. II. The auditor must assess and report on internal control.
  B. I only.
  C. II only.
  D. Either I or II.
  E. Both I and II.
  D. Either I or II.

  ---

  Choice "d" is correct. It is management's responsibility to assess and report on internal control, but the auditor is also required to assess and report on internal control. Choices "a", "b", and "c" are incorrect, based on theabove.

• Question 483:

  A large increase in nominal wages, perhaps orchestrated by unions, would most likely result in:

  A. An increase in real GDP and a decrease in the price level.
  B. A decrease in real GDP and an increase in the price level.
  C. A decrease in real GDP and a decrease in the price level.
  D. An increase in real GDP and an increase in the price level.
  B. A decrease in real GDP and an increase in the price level.

  ---

  Choice "b" is correct. An increase in nominal wages represents an increase in input costs. This would shift the aggregate supply curve to the left resulting in a decrease in real GDP and an increase in the overall price level. Choice "a" is incorrect. Real GDP would decrease, not increase. Choice "c" is incorrect. The price level would increase, not decrease. Choice "d" is incorrect. Real GDP would decrease, not increase.

• Question 484:

  The ABC Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; it will cost $6,000 to transport to ABC's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,000. Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. ABC has a marginal tax rate of 40 percent.

  What is the net cash outflow at the beginning of the first year that ABC Corporation should use in a capital budgeting analysis?

  A. $(85,000)
  B. $(90,000)
  C. $(96,000)
  D. $(105,000)
  D. $(105,000)

  ---

  Choice "d" is correct. $(105,000) net cash outflow at the beginning of the first year.

• Question 485:

  ABC Corporation is evaluating a capital investment that would result in a $30,000 higher contribution margin benefit and increased annual personnel costs of $20,000. The effects of income taxes on the net present value computation on these benefits and costs for the project are to:

  A. Decrease both benefits and costs.
  B. Decrease benefits but increase costs.
  C. Increase benefits but decrease costs.
  D. Increase both benefits and costs.
  A. Decrease both benefits and costs.

  ---

  Choice "a" is correct. The effects of income taxes on the net present value computations will decrease both benefits and costs for the project. Net present value computations focus of the present value of cash flows. Income taxes decrease both the benefit and the cost of cash flows. Choices "b", "c", and "d" are incorrect, per the above Explanation.

• Question 486:

  An auditor would least likely use computer software to:

  A. Construct parallel simulations.
  B. Access client data files.
  C. Prepare spreadsheets.
  D. Assess EDP control risk.
  D. Assess EDP control risk.

  ---

  Choice "d" is correct. The assessment of control risk is based on auditor judgment. A computer cannot replace professional auditor judgment in assessing control risk. Choice "a" is incorrect. Computer software would be used when constructing parallel simulations. Parallel simulation involves taking the client's data and reprocessing it using the auditor's equipment and software. Choice "b" is incorrect. The auditor would use generalized audit software or retrieval package software to access client data files. Choice "c" is incorrect. The auditor would most likely use some sort of software to prepare spreadsheets.

• Question 487:

  When the Economic Order Quantity (EOQ) model is used for a firm, which manufactures its inventory, ordering costs consist primarily of:

  A. Insurance and taxes.
  B. Storage and handling.
  C. Production set-up.
  D. Cost of funds.
  C. Production set-up.

  ---

  Choice "c" is correct. When the economic order quantity (EOQ) model is used for a firm that manufactures its own inventory, ordering costs consist primarily of production set-up. Choices "a", "b", and "d" are incorrect, per the above Explanation.

• Question 488:

  In a competitive labor market, a minimum wage that is set above the equilibrium wage will result in which of the following:

  A. A decrease in the quantity demanded of labor.
  B. An increase in the quantity supplied of labor.
  C. A decrease in total employment.
  D. All of the above.
  D. All of the above.

  ---

  Choice "d" is correct. As illustrated in the graph, a minimum wage that is set above the equilibrium wage results in a decrease in the quantity demanded of labor (falls to LD), an increase in the quantity supplied of labor (increases to LS), and a decrease in total employment (total employment falls from L* to LD). Choices "a", "b", and "c" are incorrect. All are true, making choice "d" the only right answer.

• Question 489:

  Which of the following parties is liable to repay an illegal distribution to a corporation?

  A. A director not breaching his or her duty in approving the distribution and the corporation is solvent.
  B. A director not breaching his or her duty in approving the distribution and the corporation is insolvent.
  C. A shareholder not knowing of the illegality of the distribution and the corporation is solvent.
  D. A shareholder knowing of the illegality of the distribution and the corporation is insolvent.
  D. A shareholder knowing of the illegality of the distribution and the corporation is insolvent.

  ---

  Choice "d" is correct. Illegal dividends from an insolvent company must be repaid to the corporation for the benefit of the creditors. A shareholder who knowingly accepts an illegal dividend is liable to return it. Choices "a" and "b" are incorrect. If a director does not breach any duties in approving a distribution, the director is protected by the business judgment rule and is not liable for the distribution whether the corporation is solvent or insolvent. Choice "c" is incorrect. A shareholder of a solvent corporation who unknowingly accepts an illegal distribution is not obligated to repay the distribution.

• Question 490:

  Greller owns 100 shares of ABC Corp., a publicly-traded company, which Greller purchased on January 1, 2001, for $10,000. On January 1, 2003, ABC declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 per share. Immediately following the split, the FMV of ABC stock was $62 per share. On February 1, 2003, Greller had his broker specifically sell the 100 shares of ABC stock received in the split when the FMV of the stock was $65 per share. What is the basis of the 100 shares of ABC sold?

  A. $5,000
  B. $6,000
  C. $6,200
  D. $6,500
  A. $5,000

  ---

  Choice "a" is correct. The receipt of a nontaxable stock dividend will require the shareholder to spread the basis of his original share over both the original shares and the new shares received resulting in the same total basis, but a lower basis per share of stock held. Therefore, Greller total basis remains the same, $10,000, but is now split between 200 shares (a 2-for-1 split and he originally owned 100 shares). Therefore, his basis per share goes from $100/share ($10,000/100) to $50/share ($10,000/200). Consequently, his basis in 100 share is 100 x $50 = $5,000. Choices "b", "c", and "d" are incorrect per the above explanation.