AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 681:

  With respect to the following matters, which is correct if a general partnership agreement is silent?

  A. A partnership will continue indefinitely unless a majority of the partners votes to dissolve the partnership.
  B. Partnership losses are allocated in the same proportion as partnership profits.
  C. A partner may assign his interest in the partnership but only with the consent of the other partners.
  D. A partner may sell the goodwill of the partnership without the consent of the other partners when the sale is in the best interest of the partnership.
  B. Partnership losses are allocated in the same proportion as partnership profits.

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  Choice "b" is correct. As a general principle of partnership law, as well as under the Revised Uniform Partnership Act, in the absence of an agreement otherwise partnership losses are allocated among partners in the same proportion as partnership profits. Choice "a" is incorrect. A partnership will dissolve on the death, bankruptcy, incapacity, or other withdrawal of a partner, unless the partners vote to continue. Choice "c" is incorrect. A partner may assign his interest in the partnership at any time without consent of the partners since such an assignment does not make the assignee a partner; instead it merely gives the assignee the assignor's rights to distributions from the partnership. Choice "d" is incorrect. A sale of partnership good will is an extraordinary transaction that requires consent of the partners. A single partner has no authority to make such a sale on his own accord.

• Question 682:

  In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are:

  A. Not subject to bias.
  B. Consistent with industry guidelines.
  C. Based on objective assumptions.
  D. Reasonable in the circumstances.
  D. Reasonable in the circumstances.

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  Choice "d" is correct. In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are reasonable in the circumstances and in conformity with GAAP. Choice "a" is incorrect. Most estimates are subjective in nature and thus subject to bias. Choice "b" is incorrect. Industry guidelines generally do not determine the amount of an accounting estimate, which is developed in accordance with GAAP. Choice "c" is incorrect. Estimates are generally not based upon objective assumptions; rather, they are uncertain in nature, pending the outcome of future events.

• Question 683:

  Which of the following represents a firm's average gross receivable balance?

  A. Days' sales in receivables x accounts receivable turnover. II. Average daily sales x average collection period. III. Net sales ?average gross receivables.
  B. I only.
  C. I and II only.
  D. II only.
  E. II and III only.
  C. I and II only.

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  Choice "c" is correct. II only - Average daily sales ($27,397) ?Average collection period (36.5) = $1,000,000 Avg gross A/R Not I - Days' sales in receivables (36.5) ?AR turnover 10 = 365 days in year. Not III - Net sales ($10,000,000) ?Avg gross receivables ($1,000,000) = 10 AR turnover.

• Question 684:

  Which of the following most likely would be detected by an auditor's review of a client's sales cut-off?

  A. Shipments lacking sales invoices and shipping documents.
  B. Excessive write-offs of accounts receivable.
  C. Unrecorded sales at year-end.
  D. Lapping of year-end accounts receivable.
  C. Unrecorded sales at year-end.

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  Choice "c" is correct. A sales cut-off test is used to detect unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by "holding the books open"). Choice "a" is incorrect. A sales cut-off test relies on shipping documents to test the "cut-off" of sales invoices. Shipping documents are selected and the corresponding sale is examined to determine whether it was recorded in the proper period. A cut-off test is unlikely to detect the omission of shipping documents, since transactions without such documentation would have no chance of being selected for testing. Choices "b" and "d" are incorrect. Sales cut-off testing generally does not involve tests related to accounts receivable.

• Question 685:

  A city ordinance that freezes rent prices may cause:

  A. The demand curve for rental space to fall.
  B. The supply curve for rental space to rise.
  C. The quantity demanded of rental space exceeds the quantity supplied.
  D. The quantity supplied of rental space exceeds the quantity demanded.
  C. The quantity demanded of rental space exceeds the quantity supplied.

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  Choice "c" is correct. A city ordinance that freezes rent prices (such as rent control and rent stabilization in New York City) may cause the quantity demanded for rental space to exceed the quantity supplied. This occurs if the rent-controlled price is set below the market clearing price. At the controlled price, the quantity supplied will be constrained due to the low rent prices for the rent-controlled and rent-stabilized properties; builders will not want to build and rent properties for less than they are worth on the open market. The quantity demanded for the rental space will still be artificially high due to the city ordinance, which sets the controlled price below the market price. Thus, the quantity demanded will exceed the quantity supplied. New York City rent control is a perfect example of the effect of a price ceiling and the problems that it can cause. Choice "a" is incorrect. A city ordinance that freezes rent prices will not cause the demand curve for rental space to fall. Price changes cause movements along the demand curve, not shifts in the demand curve. Choice "b" is incorrect. A city ordinance that freezes rent prices will not cause the supply curve for rental space to rise. Price changes cause movements along the supply curve, not shifts in the supply curve. Choice "d" is incorrect. A city ordinance that freezes rent prices will not cause the quantity supplied to exceed the quantity demanded. This choice is backwards.

• Question 686:

  During the first quarter of the calendar year, ABC Co. had income before taxes of $100,000, and its effective income tax rate was 15%. ABC's effective annual income tax rate for the previous year was 30%. ABC expects that its effective annual income tax rate for the current year will be 25%. The statutory tax rate for the current year is 35%. In its first quarter interim income statement, what amount of income tax expense should ABC report?

  A. $15,000
  B. $25,000
  C. $30,000
  D. $35,000
  B. $25,000

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  Choice "b" is correct. When preparing interim financial statements, income tax expense is estimated each quarter using the effective tax rate expected to apply to the entire year. Choice "a" is incorrect. ABC should use the effective annual tax rate, not the effective tax rate for the quarter only. Choice "c" is incorrect. ABC should use the effective annual tax rate expected to apply to the current year, not the prior year's effective tax rate. Choice "d" is incorrect. ABC should use the effective annual tax rate, not the statutory tax rate.

• Question 687:

  Which of the following actions may a corporation take without its stockholders' consent?

  A. Consolidate with one or more corporations.
  B. Merge with one or more corporations.
  C. Dissolve voluntarily.
  D. Purchase 55% of another corporation's stock.
  D. Purchase 55% of another corporation's stock.

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  Choice "d" is correct. Directors are free to make most corporate decisions unilaterally. However, decisions that might fundamentally change the nature of the corporation require the consent of the shareholders. The purchase of 55% of another corporation's stock can be quite insignificant to the purchaser and is not a fundamental corporate change. Choice "a" is incorrect because a consolidation is a fundamental corporate change. Choice "b" is incorrect because a merger is a fundamental corporate change. Choice "c" is incorrect because a dissolution is a fundamental corporate change.

• Question 688:

  In a tax year where the taxpayer pays qualified education expenses, interest income on the redemption of qualified U.S. Series EE Bonds may be excluded from gross income. The exclusion is subject to a modified gross income limitation and a limit of aggregate bond proceeds in excess of qualified higher education expenses. Which of the following is (are) true?

  A. The exclusion applies for education expenses incurred by the taxpayer, the taxpayer's spouse, or any person whom the taxpayer may claim as a dependent for the year. II. "Otherwise qualified higher education expenses" must be reduced by qualified scholarships not includible in gross income.
  B. I only.
  C. II only.
  D. Both I and II.
  E. Neither I nor II.
  C. II only.

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  Choice "c" is correct. Interest earned on Series EE bonds issued after 1989 may qualify for exclusion. One requirement is that the interest is used to pay tuition and fees for the taxpayer, spouse, or dependent enrolled in higher education. The interest exclusion is reduced by qualified scholarships that are exempt from tax and other nontaxable payments received for educational expenses (other than gifts and inheritances).

• Question 689:

  When conducting field work for a physical inventory, an auditor cannot perform which of the following steps using a generalized audit software package?

  A. Observing inventory.
  B. Selecting sample items of inventory.
  C. Analyzing data resulting from inventory.
  D. Recalculating balances in inventory reports.
  A. Observing inventory.

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  Choice "a" is correct. A generalized audit software package (GASP) is used to perform tests directly on a client's system. Since observing inventory involves personal observations made by the auditor, and is unrelated to the client's system, a GASP would not be useful in this regard. Choice "b" is incorrect. Generalized audit software packages (GASPs) are used to perform tests directly on a client's system. Tasks typically performed by GASPs include selecting items that meet specified criteria. Choice "c" is incorrect. Generalized audit software packages (GASPs) are used to perform tests directly on a client's system. Tasks typically performed by GASPs include performing statistical analysis of data. Choice "d" is incorrect. Generalized audit software packages (GASPs) are used to perform tests directly on a client's system. Tasks typically performed by GASPs include recalculating amounts and totals.

• Question 690:

  The two requirements crucial to achieving audit efficiency and effectiveness with a microcomputer are selecting:

  A. The appropriate audit tasks for microcomputer applications and the appropriate software to perform the selected audit tasks.
  B. The appropriate software to perform the selected audit tasks and client data that can be accessed by the auditor's microcomputer.
  C. Client data that can be accessed by the auditor's microcomputer and audit procedures that are generally applicable to several clients in a specific industry.
  D. Audit procedures that are generally applicable to several clients in a specific industry and the appropriate audit tasks for microcomputer applications.
  A. The appropriate audit tasks for microcomputer applications and the appropriate software to perform the selected audit tasks.

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  Choice "a" is correct. In microcomputer audit applications, efficient and effective system usage requires: (1) identification of the appropriate audit tasks and (2) appropriate software to perform the selected audit tasks. Choice "b" is incorrect. Although microcomputer access to client data is desirable, it is not required. Choice "c" is incorrect. Although microcomputer access to client data is desirable, it is not required. Also, microcomputer audit applications need not be applicable to several clients to be efficient and effective. Choice "d" is incorrect. Microcomputer audit applications need not be applicable to several clients to be efficient and effective.