AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 621:

  The optimal level of inventory would be affected by all of the following, except the:

  A. Cost per unit of inventory.
  B. Current level of inventory.
  C. Cost of placing an order for merchandise.
  D. Lead time to receive merchandise ordered.
  B. Current level of inventory.

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  Explanation Explanation/Reference:Choice "b" is correct. The current level of inventory has no impact on the optimal level of inventory. Choices "a", "c", and "d" are incorrect. The optimal level of inventory is affected by: 1. The inventory usage rate. 2. The cost per unit of inventory - which will have a direct impact on inventory carrying costs. 3. The cost of placing on order impacts order frequency, which affects order size and optimal inventory levels.

• Question 622:

  Gross domestic product includes which of the following measures?

  A. The size of a population that must share a given output within one year.
  B. The negative externalities of the production process of a nation within one year.
  C. The total monetary value of all final goods and services produced within a nation in one year.
  D. The total monetary value of goods and services including barter transactions within a nation in one year.
  C. The total monetary value of all final goods and services produced within a nation in one year.

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  Choice "c" is correct. Gross domestic product (GDP) is the total dollar (monetary) value of all new final products and services produced with the economy in a given time period. The emphasis is on the final goods and services. Choice "a" is incorrect. The size of a population that must share a given output within one year is not a part of the GDP calculation. Choice "b" is incorrect. The negative (or positive) externalities of the production process of a nation within one year are not a part of the GDP calculation. In economics, externalities are the effects that the acts of consumers or producers have on each other. Externalities range from technological changes to changes in the range of options available to consumers. Externalities may also be regarded as the unanticipated side effects of courses of action. Choice "d" is incorrect. The total monetary value of goods and services, including barter transactions, is not a part of the GDP calculation. GDP includes only monetary value, not barter value.

• Question 623:

  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 had no capital loss carryovers from prior years. During 1994, the Moores had the following stock transactions, which resulted in a net capital loss:

  

  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
  J. $3,000 K. $10,000 L. $25,000 M. $50,000 N. $55,000 O. $75,000

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  "J" is correct. $3,000. The capital loss on Revco ($10,000 loss) is added to the capital gain on Abbco ($4,000) to produce a net capital loss of ($6,000). The Moores can claim $3,000 of the loss on their 1994 income tax return and carry the balance forward to 1995.

• Question 624:

  All of the following are components of the formula used to calculate gross domestic product, except:

  A. Household income.
  B. Foreign net export spending.
  C. Government spending.
  D. Gross investment.
  A. Household income.

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  Choice "a" is correct. Gross domestic product (GDP) is calculated in two different ways. The first, which is the expenditure approach and can be used to answer this question, is the mnemonic GICE, or government purchases plus private domestic investment plus personal consumption expenditures plus net exports. Household income is the only one of the answers that is not included in this mnemonic. Choice "b" is incorrect. Foreign net export spending is included in the mnemonic (E) for GDP; although, it is called simply net exports in the mnemonic and not foreign net export spending. Choice "c" is incorrect. Government spending is included in the mnemonic (G) for GDP. Choice "d" is incorrect. Gross investment is included in the mnemonic (I) for GDP, although it is called private domestic investment in the mnemonic.

• Question 625:

  Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?

  A. Quick assets/current assets.
  B. Accounts receivable/inventory.
  C. Interest payable/interest receivable.
  D. Total debt/total assets.
  D. Total debt/total assets.

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  Choice "d" is correct. During the final review stage of an audit, the auditor focuses on the overall presentation of the financial statements. Total debt/total assets indicates the portion of assets financed by creditors, which is a meaningful ratio to calculate during the final audit review. Choice "a" is incorrect. Quick assets/current assets simply indicates the percentage of current assets that are also "quick" assets. It is not a particularly meaningful ratio. Choice "b" is incorrect. Accounts receivable/inventory is not a meaningful ratio because it compares a figure based on retail dollars with a cost-based figure. Choice "c" is incorrect. Interest payable/interest receivable is not a meaningful ratio because these two amounts are not related.

• Question 626:

  If an economy is currently experiencing both full employment and price stability, a major tax reduction will probably cause:

  A. An increase in the unemployment rate.
  B. An acceleration in the inflation rate, unless government expenditures are also reduced.
  C. No change in real GDP or the price level.
  D. A decrease in consumption.
  B. An acceleration in the inflation rate, unless government expenditures are also reduced.

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  Explanation Explanation/Reference: Choice "b" is correct. A tax cut shifts the aggregate demand curve to the right causing the price level and therefore the inflation rate to rise. Choice "a" is incorrect. The unemployment rate would fall, not rise. Choice "c" is incorrect. The price level would rise, not remain unchanged. Choice "d" is incorrect. Consumption would rise as disposable income rises, not fall.

• Question 627:

  An accountant's standard report on a compilation of a projection should not include a:

  A. Statement that a compilation of a projection is limited in scope.
  B. Disclaimer of responsibility to update the report for events occurring after the report's date.
  C. Statement that the accountant expresses only limited assurance that the results may be achieved.
  D. Separate paragraph that describes the limitations on the presentation's usefulness.
  C. Statement that the accountant expresses only limited assurance that the results may be achieved.

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  Choice "c" is correct. A compilation of prospective financial statements is not intended to provide assurance on the prospective financial statements or the assumptions underlying such statements. Choice "a" is incorrect. The report on a compilation should include a statement that a compilation is limited in scope. Choice "b" is incorrect. The report on a compilation should include a statement that the accountant assumes no responsibility to update the report for events subsequent to the report date. Choice "d" is incorrect. The report on a compilation should include a separate paragraph that describes the limitations on the presentation's usefulness.

• Question 628:

  Net present value as used in investment decision-making is stated in terms of which of the following options?

  A. Net income.
  B. Earnings before interest, taxes, and depreciation.
  C. Earnings before interest and taxes.
  D. Cash flow.
  D. Cash flow.

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  Choice "d" is correct. Net present value, like most capital budgeting techniques, focuses on cash flow. Cash flow is a pure measure of financial performance that isolates relevant information for decision making. The amount of cash the firm takes in and pays out for an investment affects the amount of cash the firm has available for operations and other activities. Choice "a" is incorrect. Net present value focuses on cash flows. Net income distorts financial results useful for capital budgeting decisions with non-cash items, such as depreciation, as well as with sunk costs. Choice "b" is incorrect. Net present value focuses on cash flows. Earnings before interest, taxes, and depreciation often approximates cash flow but still distorts financial results with earnings rather than the cash flow data most useful for capital budgeting. Choice "c" is incorrect. Net present value focuses on cash flows. Earnings before interest and taxes distort financial results with non-cash data (depreciation) as well as earnings data rather than the cash flow data most useful for capital budgeting.

• Question 629:

  The following table contains ABC Corp.'s quarterly revenues, in thousands, for the past three years. During that time, there were no major changes to ABC's selling strategies and total capital investment.

  

  Which of the following statements best describes the likely cause of the fluctuations in ABC's revenues and the best response to those fluctuations?

  A. The fluctuations are from changes in the economy, and ABC should examine its cost structure for potential changes.
  B. The fluctuations are from changes in the economy, and ABC should manage its inventories and cash flow to match the cycle.
  C. The fluctuations are from the seasonal demand for ABC's products, and ABC should examine its cost structure for potential changes.
  D. The fluctuations are from the seasonal demand for ABC's products, and ABC should manage its inventories and cash flow to match the cycle.
  D. The fluctuations are from the seasonal demand for ABC's products, and ABC should manage its inventories and cash flow to match the cycle.

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  Choice "d" is correct. Relatively stable demand over a three year period in each of the first three quarters of the year followed by an increase of between 40 and 50 percent in the final quarter of the year over average sales in the first three quarters in each of the three years presented is indicative of seasonal fluctuations in demand for ABC's product that would require appropriate inventory management. Choice "a" is incorrect. The consistent volume levels and fluctuation percentages displayed for the activity in each quarter for each year are indicative of changes in seasonal demand rather than changes in the economy generally. Choice "b" is incorrect. The consistent volume levels and fluctuation percentages displayed for the activity in each quarter for each year are indicative of changes in seasonal demand rather than changes in the economy generally. Choice "c" is incorrect. Relatively stable demand over a three year period in each of the first three quarters of the year followed by an increase of between 40 and 50 percent in the final quarter of the year over average sales in the first three quarters in each of the three years presented is indicative of seasonal fluctuations in demand for ABC's product. The company should be more attentive to the timing of inventory purchases to meet demand, however, rather than the company's overall cost structure.

• Question 630:

  ABC Company is quoted credit terms of 3/15, net 60 (using a 360-day year). The effective cost of not taking this discount and paying on day 60 is (rounded to nearest hundredth):

  A. 24.74 percent.
  B. 24.00 percent.
  C. 18.56 percent.
  D. 18.00 percent.
  A. 24.74 percent.

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  Explanation Explanation/Reference:Choice "a" is correct. The formula for computing the cost of credit discounts is: Choices "b", "c", and "d" are incorrect, per the above calculation.