AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 581:

  An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the:

  A. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.
  B. Accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report.
  C. Accountant's review was performed in accordance with standards established by the Securities and Exchange Commission.
  D. Accountant obtained corroborating evidence to determine whether material modifications are needed for such information to conform with GAAP.
  A. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.

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  Choice "a" is correct. If a report on a review of interim financial information is presented in a registration statement, the prospectus should include a statement that the report is not a "report" or "part" of the registration statement. The accountant should also read the other portions of the registration statement to ensure that his or her name is not used in a way that indicates greater responsibility than s/he intends. Choice "b" is incorrect. The auditor is responsible to update the report for events occurring after the date of the report but prior to filing. Choice "c" is incorrect. The accountant's review of interim financial information is performed in accordance with PCAOB standards, as approved (not established) by the SEC. Choice "d" is incorrect. Obtaining corroborating evidence is an audit procedure, not a review procedure.

• Question 582:

  If the U.S. dollar increases in value relative to the other major currencies, aggregate demand should:

  A. Increase as U.S. goods become more attractive overseas.
  B. Decrease as U.S. goods become less attractive overseas.
  C. Depends on supply of foreign goods.
  D. Not necessarily change.
  B. Decrease as U.S. goods become less attractive overseas.

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  Choice "b" is correct. If the dollar gains in value, net exports will suffer as U.S. goods become more expensive overseas; hence aggregate demand will decrease. The supply of foreign goods domestically should increase as imports become cheaper. Choice "a" is incorrect. Demand should decrease, not increase. Choice "c" is incorrect. Irrelevant to the question. Choice "d" is incorrect. Demand should decrease, not remain the same.

• Question 583:

  In testing for unrecorded retirements of equipment, an auditor most likely would:

  A. Select items of equipment from the accounting records and then locate them during the plant tour.
  B. Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment.
  C. Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger.
  D. Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
  A. Select items of equipment from the accounting records and then locate them during the plant tour.

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  Choice "a" is correct. Tracing (old) equipment recorded in the books to the actual equipment during a plant tour is a control which tests for unrecorded retirements. Choice "b" is incorrect. Determining which assets are fully depreciated does not tell you which ones are retired, as fully depreciated assets may continue to be used. Choice "c" is incorrect. Selecting items from the plant tour and then tracing them to the equipment subsidiary ledger will provide evidence that all equipment is recorded. It will not detect whether recorded equipment has been retired. (This step is backwards.) Choice "d" is incorrect. Scanning the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense provides evidence regarding fixed asset additions, not retirements.

• Question 584:

  Reporting standards for financial audits under Government Auditing Standards (the Yellow Book) differ from reporting under generally accepted auditing standards in that Government Auditing Standards require the auditor to:

  A. Provide positive assurance that control activities regarding segregation of duties are consistent with the entity's control objectives.
  B. Present the results of the auditor's tests of controls.
  C. Provide negative assurance that the auditor discovered no evidence of intentional override of internal controls.
  D. Describe the scope of the auditor's principal substantive tests.
  B. Present the results of the auditor's tests of controls.

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  Choice "b" is correct. The report on the audit of financial statements should describe the scope of the auditor's testing of compliance with laws and regulations and internal control over financial reporting, and present the results of those tests. Choice "a" is incorrect. The auditor's report on internal controls indicates whether or not material weaknesses were found, but it does not provide assurance that specific internal control activities are consistent with the entity's objectives. Choice "c" is incorrect. The auditor is not required to provide negative assurance regarding the override of internal control, although the audit report will provide negative assurances regarding internal control over financial reporting and its operations that may involve a material weakness. Choice "d" is incorrect. There is no requirement that the auditor describe the scope of substantive tests. However, under Government Auditing Standards, the report on the audit of financial statements should describe the scope of the auditor's testing of compliance with laws and regulations and internal control over financial reporting.

• Question 585:

  Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

  A. An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities.
  B. The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date.
  C. The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger.
  D. A designated member of the board of directors controls the securities in a bank safe-deposit box.
  A. An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities.

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  Choice "a" is correct. The control most likely to be used by an entity in safeguarding against the loss of marketable securities is that an independent trust company that has no direct contact with the employees who have recordkeeping responsibilities, has possession of the securities. For good internal control over the safeguarding of any asset, the individual who has the recordkeeping responsibilities over that asset should never have access to it. Choice "b" is incorrect. Verifying the securities held in the entity's safe would detect that the loss occurred, but it would not prevent the loss. Choice "c" is incorrect. Tracing purchases and sales of marketable securities would verify that the transactions were properly recorded, but would not safeguard against loss. Choice "d" is incorrect. Having one person control the securities in a bank safe-deposit box is a weakness in internal control because that one person can steal the securities. A better system requires that at least two employees have joint control over the securities in a bank safe-deposit box.

• Question 586:

  Freeman, a single individual, reported the following income in the current year:

  Guaranteed payment from services rendered to a partnership $50,000 Ordinary income from a S corporation $20,000

  What amount of Freeman's income is subject to self-employment tax?

  A. $0
  B. $20,000
  C. $50,000
  D. $70,000
  C. $50,000

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  Choice "c" is correct. Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Earned compensation is subject to self- employment tax. Payments not guaranteed are merely another way to distribute partnership profits. The ordinary income reported from an S corporation are taxable income to the individual or their own individual tax return but is not subject to self-employment tax. The ordinary income reported from a partnership may be subject to self-employment tax (if to a general partner).

• Question 587:

  During an audit an internal auditor may provide direct assistance to an independent CPA in:

  

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

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  Explanation Explanation/Reference:Choice "d" is correct. Internal auditors may assist the auditor in obtaining an understanding of internal control and in performing tests of controls and substantive tests. Choices "a", "b", and "c" are incorrect, based on the above explanation.

• Question 588:

  In a computerized payroll system environment, an auditor would be least likely to use test data to test controls related to:

  A. Missing employee numbers.
  B. Proper approval of overtime by supervisors.
  C. Time tickets with invalid job numbers.
  D. Agreement of hours per clock cards with hours on time tickets.
  B. Proper approval of overtime by supervisors.

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  Choice "b" is correct. Proper approval of overtime by supervisors is least likely to be used by the auditor in a "test data" test of controls because it is information generally not recorded in the computer. Choices "a", "c", and "d" are incorrect. Test data is data (with a predetermined result) that is run through the client's computer system. The auditor creates one transaction of each type of valid and invalid conditions in which the auditor is interested and runs them through the client's processing system. The following are recorded in the computer and are likely candidates for "test data" tests of controls: Missing employee numbers. Time tickets with invalid job numbers. Agreement of hours per clock card with hours on time tickets.

• Question 589:

  To measure how effectively an entity employs its resources, an auditor calculates inventory turnover by dividing average inventory into:

  A. Net sales.
  B. Cost of goods sold.
  C. Operating income.
  D. Gross sales.
  B. Cost of goods sold.

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  Choice "b" is correct. The appropriate numerator for calculating inventory turnover is cost of goods sold. Cost of goods sold is the expense most clearly associated with the sale (turnover) of inventory, which is priced at acquisition cost, not selling price. Choice "a" is incorrect. Net sales is a measure of revenue that reflects the price at which inventory was sold, not its recorded inventoriable value. Choice "c" is incorrect. Operating income does not tie specifically to the recorded value of inventory sold because it reflects the sales price after all operating expenses. Choice "d" is incorrect. Gross sales is a measure of revenue that reflects the price at which inventory was sold, not its recorded inventoriable value.

• Question 590:

  An industry that is oligopolistic would be best characterized by:

  A. One firm selling a product with no close substitutes.
  B. Significant barriers to entry.
  C. Horizontal or flat demand curves for the output of individual firms.
  D. The absence of significant economies of scale.
  B. Significant barriers to entry.

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  Choice "b" is correct. Oligopoly market conditions are characterized by: ?Few firms in the market ?Significant barriers to entry ?Differentiated products ?Fixed (or semi fixed) prices ?Kinked demand curves Choice "a" is incorrect. This is an example of monopoly. Choice "c" is incorrect. Horizontal demand curves represent demand that is perfectly price elastic (buyers will only pay one price for any quantity of a product). This occurs in perfectly competitive markets. Choice "d" is incorrect. This is characteristic of perfect competition, as there are no barriers to entry ("size doesn't matter") in perfect competition.