AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 491:

  Factors internal to the organization that impact strategy and are sources of strengths and weaknesses include all of the following, except:

  A. Marketing effectiveness.
  B. Competence of management.
  C. Innovation of product lines.
  D. Regulations and laws.
  D. Regulations and laws.

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  Choice "d" is correct. Regulations and laws are external factors of opportunities and threats that affect the overall industry. Choices "a", "b", and "c" are incorrect, as all of these factors are examples of internal factors of an organization.

• Question 492:

  Tim, Peter, and Rick want to form a limited liability company. What document must they file with the state?

  A. Operating Agreement.
  B. Articles of Incorporation.
  C. Bylaws.
  D. Articles of Organization.
  D. Articles of Organization.

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  Choice "d" is correct. The Articles of Organization must be filed with the secretary of state. Choice "a" is incorrect. An operating agreement is an agreement between the members containing provisions relating to management, profit sharing, transferring interests, etc. and does not need to be filed with the state. Choices "b" and "c" are incorrect. Articles of incorporation and bylaws are documents relating to corporations, and they are not required to be filed with the state.

• Question 493:

  Which of the following is a term for an attest engagement in which a CPA assesses a client's commercial Internet site for predefined criteria that are designed to measure transaction integrity, information protection, and disclosure of business practices?

  A. ElectroNet.
  B. EDIFACT.
  C. TechSafe.
  D. WebTrust.
  D. WebTrust.

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  Choice "d" is correct. A WebTrust engagement is an attestation engagement designed to measure transaction integrity, information protection, and disclosure of business practices. When an unqualified report is issued, the client may add the CPA WebTrust Seal to its Web site, indicating that its site is a reasonably safe and private place for e-commerce. Choice "a" is incorrect. ElectroNet is an Internet service provider. Choice "b" is incorrect. EDIFACT refers to standards developed by the United Nations for Electronic Data Interchange for Administration, Commerce, and Transport. These standards facilitate information flow among trading partners in many industries. The scope and format of these standards is similar, but not identical, to those developed in the United States. Choice "c" is incorrect. TechSafe is a distracter.

• Question 494:

  In the standard report on condensed financial statements that are derived from a public entity's audited financial statements, a CPA should indicate that the:

  A. Condensed financial statements are prepared in conformity with another comprehensive basis of accounting.
  B. CPA has audited and expressed an opinion on the complete financial statements.
  C. Condensed financial statements are not fairly presented in all material respects.
  D. CPA expresses limited assurance that the financial statements conform with GAAP.
  B. CPA has audited and expressed an opinion on the complete financial statements.

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  Choice "b" is correct. The auditor's report on condensed statements derived from audited statements should indicate (1) that the CPA audited and expressed an opinion on the complete financial statements, (2) the date of the auditor's report on the complete financial statements, (3) the type of opinion expressed, and (4) whether, in the auditor's opinion, the information set forth in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it was derived. Choice "a" is incorrect. Condensed financial statements are not prepared in conformity with a comprehensive basis of accounting other than GAAP. Choice "c" is incorrect. The auditor's report on condensed financial statements does not indicate whether they are fairly presented in all material respects; rather, the report indicates whether they are fairly presented in relation to the complete financial statements. Choice "d" is incorrect. The auditor does not express an opinion (or provide any assurance) on whether condensed FS conform with GAAP; only whether such statements are fairly stated in relation to the complete FS.

• Question 495:

  ABC Electric is contemplating new projects for the next year that will require $30,000,000 of new financing. In keeping with its capital structure, ABC plans to use debt and equity financing as follows:

  ?Issue $10,000,000 of 20-year bonds at a price of 101.5, with a coupon of 10%, and flotation costs of 2.5% of par value. ?Use internal funds generated from earnings of $20,000,000.

  The equity market is expected to earn 15%. U.S. treasury bonds currently are yielding 9%. The beta coefficient for ABC's common stock is estimated to be .8. ABC is subject to a 40% corporate income tax rate. ABC has a price/earnings ratio of 10, a constant dividend payout ratio of 40%, and an expected growth rate of 12%.

  Assume ABC has an after-tax cost of debt of 9% and an after-tax cost of equity of 15%. ABC's weighted average cost of capital is:

  A. 11.0%
  B. 13.0%
  C. 12.0%
  D. 11.8%
  B. 13.0%

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  Choice "b" is correct. The WACC is computed by multiplying the required returns on equity and debt by the percentage of equity and debt used to finance that particular project. ABC will use 33% debt ($10 million of $30 million total project cost) and 67% equity ($20 million of $30 million total project cost). Choices "a", "c", and "d" are incorrect, per the above calculation.

• Question 496:

  An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph:

  A. Is considered an "except for" qualification of the opinion.
  B. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
  C. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing ."
  D. Is appropriate and would not negate the unqualified opinion.
  D. Is appropriate and would not negate the unqualified opinion.

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  Choice "d" is correct. Emphasis of a matter should be disclosed in an explanatory paragraph appended to an otherwise unqualified opinion. Choice "a" is incorrect. An "except for" qualification is used for a scope limitation or a departure from GAAP, but not for emphasis of a matter. Choice "b" is incorrect. The auditor may emphasize a matter even if it is included in the footnotes. Choice "c" is incorrect. A phrase such as "with the foregoing " should not be used in an unqualified opinion.

• Question 497:

  Commercial paper:

  A. Has a maturity date greater than one year.
  B. Is generally sold only through investment banking dealers.
  C. Generally does not have an active secondary market.
  D. Has an interest rate lower than treasury bills.
  C. Generally does not have an active secondary market.

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  Choice "c" is correct. Although commercial paper has a secondary market available, it is generally not an active secondary market. Commercial paper is usually sold to the money markets by highly creditworthy companies. Choice "a" is incorrect. The maturity dates are generally less than 270 days. Choice "b" is incorrect. Commercial paper can be sold to the money markets through a variety of intermediaries including brokers, dealers, investment brokers, etc. It can also be sold direct from one company to another. Choice "d" is incorrect. The interest rate on commercial paper is below the prime rate, but generally above the Treasury bill rate.

• Question 498:

  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. Buyers have low switching costs of changing products.
  D. The firm is unable to change suppliers easily.
  D. The firm is unable to change suppliers easily.

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  Choice "d" is correct. When a firm is unable to change suppliers easily, that is a factor that increases the bargaining power of the suppliers. Choices "a", "b", and "c" 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.

• Question 499:

  Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements?

  A. The complexity of the information system relevant to financial reporting.
  B. The existence of related party transactions.
  C. The adequacy of the accounting records.
  D. The operating effectiveness of controls.
  C. The adequacy of the accounting records.

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  Choice "c" is correct. Inadequate financial records may preclude the auditor from obtaining sufficient appropriate audit evidence. Choice "a" is incorrect. The complexity of the client's information system generally would not influence an auditor's determination of auditability, although it might indicate the need for an information technology expert. Choice "b" is incorrect. The existence of related party transactions generally would not influence the auditor's determination of auditability. Choice "d" is incorrect. The operating effectiveness of internal controls is determined long after the decision about auditability is made.

• Question 500:

  Management of ABC Industries, an issuer as defined under the Sarbanes-Oxley Act, believes it has eliminated a material weakness previously noted in its assessment of internal control, and has hired Henna and Company, CPAs, to attest to the improvements in internal control. Which of the following is true of this engagement?

  A. It is required by PCAOB standards.
  B. It is only required if ABC Industries elects to have an audit in accordance with PCAOB standards.
  C. ABC's management must provide a written report to accompany Henna and Company's report.
  D. It is required by generally accepted auditing standards.
  C. ABC's management must provide a written report to accompany Henna and Company's report.

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  Choice "c" is correct. ABC's management must provide a written report to accompany Henna and Company's report. Choices "a" and "d" are incorrect. An engagement to report on whether a previously reported internal control weakness continues to exist is a voluntary engagement, not required by professional standards. Choice "b" is incorrect. An engagement to report on whether a previously reported internal control weakness continues to exist is a voluntary engagement, not required by professional standards. In addition, as an issuer, ABC must have an audit in accordance with PCAOB standards.