AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 811:

  ABC Manufacturing Corporation uses the standard Economic Order Quantity (EOQ) model. If the EOQ for Product A is 200 units and ABC maintains a 50-unit safety stock for the item, what is the average inventory of Product A?

  A. 250 units.
  B. 150 units.
  C. 125 units.
  D. 100 units.
  B. 150 units.

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  Choice "b" is correct. 150 units is the average inventory including a 50-unit safety stock. Choices "a", "c", and "d" are incorrect, per the above calculation.

• Question 812:

  In auditing a client's retained earnings account, an auditor should determine whether there are any restrictions on retained earnings that result from loans, agreements, or state law. This procedure is designed to corroborate management's financial statement assertions with respect to:

  A. Transactions and events.
  B. Account balances.
  C. Presentation and disclosure.
  D. Audit risk and materiality.
  C. Presentation and disclosure.

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  Choice "c" is correct. Restrictions on retained earnings should be shown as appropriations in the financial statements. An auditor attempts to determine whether any such restrictions exist to verify that proper disclosures (i.e., retained earnings appropriations) have been made. Choices "a" and "b" are incorrect. Retained earnings appropriations restrict the company from paying dividends in excess of the unappropriated portion of retained earnings. This relates to presentation and disclosure, not to transactions, events, or balances. Choice "d" is incorrect. Audit risk and materiality are not financial statement assertions.

• Question 813:

  The imputed interest rate used in the residual income approach to performance evaluation can best be described as the:

  A. Historical weighted average cost of capital for the company.
  B. Target return on investment set by the company's management.
  C. Average return on investments for the company over the last several years.
  D. Marginal after-tax cost of capital on new equity capital.
  B. Target return on investment set by the company's management.

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  Choice "b" is correct. The imputed interest rate used in the residual income approach can best be described as the target return on investment set by the company's management. Choice "a" is incorrect, but it is a close second. The historical weighted average cost of capital may be how management sets the target return on investment. Choice "c" is incorrect. The average return on investments for past years may not be a good indication of management's future intentions. Choice "d" is incorrect. Marginal after-tax cost of capital on new equity may be how management sets its targets, but it may not be, too.

• Question 814:

  During a recession:

  A. Output (real GDP) will be increasing.
  B. The natural rate of unemployment will increase dramatically.
  C. Potential output will exceed actual output.
  D. Actual output will exceed potential output.
  C. Potential output will exceed actual output.

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  Choice "c" is correct. During a recession, potential output (real GDP) will exceed actual output (real GDP). Choice "a" is incorrect. Real GDP is falling during a recession. Choice "b" is incorrect. The natural rate of unemployment will not be affected by the various phases of the business cycle. Actual unemployment will change with the cycle. Choice "d" is incorrect. Actual output will not exceed potential output except at the peak of the cycle, and perhaps not then.

• Question 815:

  If demand is price elastic:

  A. An increase in price will result in a decline in total revenue.
  B. An increase in price will result in a decline the quantity demanded that is less than the increase in price.
  C. An increase in price will result in an increase in total revenue.
  D. An increase in price will have no effect on total revenue.
  A. An increase in price will result in a decline in total revenue.

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  Choice "a" is correct. If demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship). Choice "b" is incorrect. When demand is price elastic, an increase in price results in a decline in quantity demanded that is proportionately larger than the increase in price, thus having the result of a decline in total revenue (price multiplied by quantity). Choices "c" and "d" are incorrect, per the above statement.

• Question 816:

  During 2001, Adler had the following cash receipts:

  

  What is the total amount that must be included in gross income on Adler's 2001 income tax return?

  A. $18,000
  B. $18,400
  C. $19,500
  D. $19,900
  C. $19,500

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  Choice "c" is correct. The wages of $18,000 and unemployment compensation are both includable in gross income on Adler's 2001 income tax return. Choice "a" is incorrect. The unemployment compensation must be included in gross income. Choice "b" is incorrect. Municipal bond interest income is excluded from gross income and the unemployment compensation must be included in gross income. Choice "d" is incorrect. Municipal bond interest income is excluded from gross income.

• Question 817:

  A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAE) when:

  

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

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  Choice "c" is correct. Statements on Standards for Attestation Engagements provide guidance with respect to compilation of a financial projection, but they do not address services involving advocating for a client, such as testifying as an expert witness. Choices "a", "b", and "d" are incorrect, per above explanation.

• Question 818:

  ABC Industries is the leader in its market for producing high-quality cat food for cats that require special diets. While it has been able to sustain competitive advantage for years, ABC's management has implemented a strategic framework that focuses on why the firm has been so successful in its market. ABC Industries has implemented which type of strategic framework?

  A. Industry structure analysis.
  B. Core competencies analysis.
  C. Segmentation analysis.
  D. None of the above.
  B. Core competencies analysis.

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  Choice "b" is correct. Analysis of the core competencies of a firm help it to determine why it is able to create, attain, and sustain new types of competitive advantage and profits and reveal what it is within the firm that enables it to obtain competitive advantage. Choice "a" is incorrect. Industry structure analysis assists in determining what it is that makes a firm more profitable compared to another firm, and it looks at five forces that influence profitability of an industry or market and, thus, the competitive environment. Choice "c" is incorrect. Segmentation analysis is a possibility when a firm is vertically integrated and when the industry structure and core competencies vary among activities in the value chain. Choice "d" is incorrect, as choice "b" is the answer to the question.

• Question 819:

  A development stage enterprise should use the same generally accepted accounting principles that apply to established operating enterprises for: A. Option A

  

  B. Option B

  C. Option C

  D. Option D

  Correct Answer. A
  A

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  Choice "a" is correct. Development stage enterprises must use all the same principles as established enterprises including those of revenue recognition and deferral of expenses. The primary difference is that development stage enterprises must provide additional disclosures not required of established operating enterprises.

• Question 820:

  Strategic planning, as practiced by most modern organizations, includes all of the following, except:

  A. Top-level management participation.
  B. Strategies that will help in achieving long-range goals.
  C. Analysis of the current month's actual variances from budget.
  D. Identification of long-term key variables including external influences.
  C. Analysis of the current month's actual variances from budget.

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  Choice "c" is correct. Analysis of the current month's actual variances from budget is not a part of strategic planning. It is too short-term and looks at the past. Strategic planning has a long-term focus and is forward- looking. Strategic planning includes: A. Top-level management participation. B. Strategies that will help in achieving long-range goals. D. Identification of long-term key variables including external influences.