Question: Which of the following situations would not impair objectivity, integrity, or independence with respect to an audit client?

Choices:
- An auditor takes the client’s audit committee to Las Vegas for the weekend.
- An out-of-town client takes the audit engagement team out to dinner at a renowned local restaurant.
- An auditor provides client management with box seats for the season at a major league baseball franchise.
- A client takes the audit engagement team on a two-day ski trip after the audit team worked for two consecutive weekends.


Question: Which of the following procedures should a user auditor include in the audit plan to create that most efficient audit when an audit client uses a service organization for several processes?

Choices:
- Review that service auditor’s report on controls placed in operations.
- Review the service auditor’s report and outline the accounting system in a memo to the working papers
- Audit the service organization’s controls, assess risk, and prepare the audit plan.
- Audit the service organization’s controls to test the work of the service auditor.


Question: In the current year Vinton exchanged unimproved land for an apartment building. The land had a basis of $300000 and a fair market value (FMV) of $420000 and was encumbered by a $100000 mortgage. The apartment building had an FMV of $550000 and was encumbered by a $230000 mortgage. Each party assumed the other's mortgage. What is Vinton's basis in the office building?

Choices:
- $300,000
- $320,000
- $430,000
- 550000


Question: When the operating effectiveness of a control is not evidenced by written documentation, an auditor should obtain evidence about the control’s effectiveness by

Choices:
- Mailing confirmations.
- Inquiry and other procedures such as observation.
- Analytical procedures.
- Recalculating the balance in related accounts.


Question: Lake Trust a simple trust reported the following items of income and expense during the year: Dividend income $2500 Taxable interest income 2000 Capital gains (allocable to corpus) 5000 Accounting fees (allocable to income) (500) Trustee fees (allocable to income) (750) What is Lake's distributable net income?

Choices:
- $9,500
- $8,250
- $5,000
- 3250


Question: An auditor of a nonissuer may not issue a qualified opinion when

Choices:
- The auditor lacks independence with respect to the entity.
- Management prevents the auditor from observing the entity's inventory.
- The entity omits the statement of cash flows from its financial statements.
- The auditor's report refers to the work of an actuary.


Question: Which of the following factors most likely would be considered an inherent limitation to an entity's internal control?

Choices:
- The ineffectiveness of the entity's audit committee.
- Collusion of employees in circumventing internal controls.
- The lack of resources to monitor internal controls.
- The complexity of the entity's electronic order processing system.


Question: The Houser Company has negotiated a $500,000 revolving credit agreement with Chitwood National Bank. The agreement calls for an interest rate of 10% on fund used, a 15% compensating balance, and a commitment fee of 1% on the unused amount of the credit line. Assuming that the compensating balance would not otherwise be maintained, the effective annual interest cost if the firm borrows $200,000 for one year is closest to

Choices:
- 11.5 percent.
- 15 percent.
- 26.5 percent.
- 13.53 percent.


Question: Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be

Choices:
- Allocated on a pro rata basis to the nonmonetary assets acquired.
- Capitalized as part of goodwill and tested annually for impairment
- Capitalized as an other asset and amortized over five years.
- Expensed as incurred in the current period


Question: Smith Legal Services has offered to represent a plaintiff in a lawsuit for a retainer of $20000 plus 40% of any award over $20000. Smith expects to incur out-of-pocket expenditures of $15000 in litigating the suit. Possible court awards with their associated probabilities are: Award Probability $100000 0.7 $0 0.3 What is the expected value to Smith of the lawsuit?

Choices:
- $25,900
- $27,400
- $33,000
- 37000


Question: A bond with a five-year maturity, paying 8% coupons and with a face value of $100, is bought at 104.1 in year 0, when it is issued. If I need to sell the bond at the the end the third year, when its prevailing price is 82, what is my holding period return on this investment? (Assume coupons are not reinvested.) HINT: Accumulate all coupons.

Choices:
- 24%
- 23%
- -21%
- 2%


Question: What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?

Choices:
- $140,000
- $220,000
- $360,000
- $580,000


Question: A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA must

Choices:
- Document the error in the workpapers.
- Prepare an amended return within 30 days of the discovery of the error.
- Promptly advise the client of the error.
- Promptly resign from the engagement and cooperate with the successor accountant.


Question: An auditor is using statistical sampling in testing whether cash disbursements were properly authorized. The sample results indicate that the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate. Under these circumstances the auditor most likely would reduce the

Choices:
- Planned reliance on the prescribed control.
- Assessed level of control risk.
- Planned reliance on substantive tests.
- Tolerable rate of deviations.


Question: When assessing an internal auditor's objectivity an independent auditor should

Choices:
- Perform tests of controls to determine whether significant internal control activities are properly maintained.
- Analyze the risk factors that relate to misstatements arising from the misappropriation of assets.
- Review the internal auditor's reports to verify that the conclusions reached are consistent with the procedures performed.
- Consider the policies that prohibit the internal auditor from auditing areas where relatives are employed in key management positions.


Question: In the statement of activities for a governmental entity revenues such as charges for building permits garbage collection and dog licenses are reported as which of the following?

Choices:
- Program revenues in the category ‚ÄúCapital Grants and Contributions.‚Äù
- Program revenues in the category ‚ÄúCharges for Services.‚Äù
- General revenues in the category ‚ÄúCharges for Services.‚Äù
- General revenues in the category ‚ÄúCapital Grants and Contributions.‚Äù


Question: How would the following ratios or measures be affected if a company issued additional capital stock for cash? Total debt to total assets Working capital

Choices:
- Increase Increase
- Increase Decrease
- Decrease Increase
- Decrease Decrease


Question: Which of the following statements is the most significant characteristic in determining the classification of an enterprise fund?

Choices:
- The predominant customer is the primary government.
- The pricing policies of the activity establish fees and charges designed to recover its cost.
- The activity is financed by debt that is secured partially by a pledge of the net revenues from fees and charges of the activity.
- Laws or regulations require that the activity’s costs of providing services including capital costs be recovered with taxes or similar revenues.


Question: Rune Co.'s checkbook balance on December 31 was $10000. On that date Rune held the following items in its safe: $4000 check payable to Rune postdated January 3 and not included in the December 31 checkbook balance in collection of a sale made in December. $1000 check payable to Rune deposited December 15 and included in the December 31 checkbook balance but returned by the bank on December 30 stamped "NSF". The check was redeposited on January 2 and cleared on January 9. What amount should Rune report as cash in its December 31 balance sheet?

Choices:
- $9,000
- $10,000
- $13,000
- 14000


Question: Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Choices:
- Verify inventory pledged under loan agreements by confirming the details with financial institutions.
- Inquire about the current status of transactions that were recorded on the basis of preliminary data.
- Compare the financial statements being reported on with those of the prior year.
- Trace information from shipping documents to sales invoices and sales journal transactions.


Question: The following information pertains to Baxter Co: Inventory at beginning of year $200000 Inventory at year end $300000 Cost of goods sold during the year $500000 What was Baxter's inventory turnover for the year?

Choices:
- 1
- 1.5
- 2
- 2.5


Question: In planning an audit, the auditor's knowledge about the design of relevant internal control activities should be used to

Choices:
- Identify the types of potential misstatements that could occur.
- Assess the operational efficiency of internal control.
- Determine whether controls have been circumvented by collusion.
- Document the assessed level of control risk.


Question: Prime Corp. is an accrual-basis calendar-year C corporation. Its current-year reported book income before federal income taxes was $300000 which included $17000 corporate bond interest income. A $20000 expense for term life insurance premiums on corporate officers was incurred. Prime was the policy owner and beneficiary. What was Prime's current-year taxable income as reconciled on Prime's Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return of Form 1120 U.S. Corporation Income Tax Return?

Choices:
- $320,000
- $300,000
- $283,000
- 280000


Question: If the correlation between Securities A and B is −0.20, and their respective standard deviations are 8% and 18%, what is the standard deviation of a portfolio with one quarter invested in A and three quarters invested in B?

Choices:
- 8.70%
- 13.20%
- 54%
- 6.60%


Question: During the current year Cooley Co. had an unrealized gain of $100000 on a debt investment classified as available-for-sale. Cooley's corporate tax rate is 25%. What amount of the gain should be included in Cooley's net income and other comprehensive income at the end of the current year? Net income Other comprehensive income

Choices:
- $100000 $0
- $75000 $25000
- $25000 $75000
- $0 $75000


Question: You are told an investment will generate income that grows at 5% p.a. forever when the market discount rate is 15%. If the investment’s next payout is $10, what is the value of the investment?

Choices:
- $1
- $500
- $100
- $200


Question: Which of the following matters is included in a typical comfort letter?

Choices:
- Negative assurance on whether unaudited condensed financial information complies in form with the accounting requirements of the SEC.
- An opinion on whether any fraud risk factors indicate significant incentive and opportunity relating to fraudulent financial reporting.
- Positive assurance on whether there has been any change in capital stock or long-term debt since the date of the audited financial statements.
- An opinion on whether the entity's internal control components are operating as designed in achieving their stated objectives.


Question: Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatements arising from fraudulent financial reporting?

Choices:
- Management displays a significant disregard for regulatory authorities.
- There is a lack of turnover of employees in the accounting department.
- Monthly bank reconciliations usually include several deposits in transit.
- Equipment is usually sold at a loss before being fully depreciated.


Question: The primary purpose of a not-for-profit organization's statement of activities is to provide relevant information to its

Choices:
- Resource providers.
- Managers.
- Beneficiaries.
- State regulatory body.


Question: Kanji Company had sales last year of $265 million, including cash sales of $25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)

Choices:
- $26.1 million
- $23.7 million
- $7.4 million
- $18.7 million


Question: Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra’s comprehensive income?

Choices:
- $4,000
- $10,000
- $11,000
- $17,000


Question: On October 31, year 1, a company with a calendar year-end paid $90,000 for services that will be performed evenly over a sixmonth period from November 1, year 1, through April 30, year 2. The company expensed the $90,000 cash payment in October, year 1, to its services expense general ledger account. The company did not record any additional journal entries in year 1 related to the payment. What is the adjusting journal entry that the company should record to properly report the prepayment in its year 1 financial statements?

Choices:
- Debit prepaid services and credit services expense for $30,000.
- Debit prepaid services and credit services expense for $60,000.
- Debit services expense and credit prepaid services for $30,000.
- Debit services expense and credit prepaid services for $60,000.


Question: Which of the following should a practitioner perform as part of an engagement for agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements?

Choices:
- Issue a report on findings based on specified procedures performed.
- Assess whether the procedures meet the needs of the parties.
- Express negative assurance on findings of work performed.
- Report the differences between agreed-upon and audit procedures.


Question: Which of the following types of information would be included in total net assets in the statement of financial position for a nongovernmental not-for-profit organization?

Choices:
- Total current net assets and total other assets.
- Total current assets and restricted assets.
- Unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
- Unrestricted net assets, restricted net assets, and total current assets.


Question: According to the Bond Equivalent Yield (BEY) method, the yield on a $1,000, 13-week US Treasury bill purchased for $960 would be closest to .

Choices:
- 16.0 percent
- 16.7 percent
- 17.0 percent
- 17.8 percent


Question: Joe is the trustee of a trust set up for his father. Under the Internal Revenue Code, when Joe prepares the annual trust tax return, Form 1041, he

Choices:
- Must obtain the written permission of the beneficiary prior to signing as a tax return preparer.
- Is not considered a tax return preparer.
- May not sign the return unless he receives additional compensation for the tax return.
- Is considered a tax return preparer because his father is the grantor of the trust.


Question:
A nongovernmental, not-for-profit organization held the following investments:
Investment Cost, Fair value (beginning of year), Fair value (end of year)
Stock A (100 shares), $50 per share, $45, $51
Stock B (200 shares), $40 per share, $41, $49
What amount of stock investments should be reported in the year-end statement of financial position?

Choices:
- $12,700
- $13,000
- $13,800
- $14,900


Question: Strut Co. has a payable to its parent Plane Co. In which of the following balance sheets should this payable be reported separately? Strut's Plane's consolidated balance sheet balance sheet

Choices:
- Yes Yes
- Yes No
- No Yes
- No No


Question: An entity prepares its financial statements on the income tax basis. A description of how that basis differs from GAAP should be included in the

Choices:
- Notes to the financial statements.
- Auditor’s engagement letter.
- Management representation letter.
- Introductory paragraph of the auditor’s report.


Question: Lind Co.'s salaries expense of $10,000 is paid every other Friday for the 10 workdays then ending. Lind's employees do not work on Saturdays and Sundays. The last payroll was paid on June 18. On Wednesday, June 30, the month-end balance in the salaries expense account before accruals was $14,000. What amount should Lind report as salaries expense in its income statement for the month ended June 30?

Choices:
- $24,000
- $22,000
- $20,000
- $18,000


Question: Which of the following statements is correct as it relates to changes in accounting estimates?

Choices:
- Most changes in accounting estimates are accounted for retrospectively.
- Whenever it is impossible to determine whether a change in an estimate or a change in accounting principle occurred, the change should be considered a change in principle.
- Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate.
- It is easier to differentiate between a change in accounting estimate and a change in accounting principle than it is to differentiate between a change in accounting estimate and a correction of an error.


Question: A partner in a general partnership is usually not entitled to which of the following?

Choices:
- To participate in management.
- To review accounting records.
- To enter into a contract with a third party without the consent of the other partners.
- To be liable only for personal negligence.


Question: Which of the following matters does an auditor usually include in the engagement letter?

Choices:
- Arrangements regarding fees and billing.
- Analytical procedures that the auditor plans to perform.
- Indications of negative cash flows from operating activities.
- Identification of working capital deficiencies.


Question: In the financial statements of employee benefit pension plans and trusts, the plan investments are reported at

Choices:
- Fair value.
- Historical cost.
- Net realizable value.
- Lower of historical cost or market.


Question: An accountant compiles the financial statements of a nonissuer and issues the standard compilation report. Although not specifically stated in this report, it is implied that

Choices:
- The accountant has not audited or reviewed the financial statements.
- Substantially all disclosures required by GAAP are included in the financial statements.
- The financial statements should not be used to obtain credit.
- The compilation is limited to presenting information that is the representation of management.


Question: Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent. According to the capital-asset pricing model (CAPM) and making use of the information above, the required return on Plaid Pants' common stock should be , and the required return on Acme's common stock should be .

Choices:
- 3.6 percent; 7.2 percent
- 9.6 percent; 13.2 percent
- 9.0 percent; 18.0 percent
- 14.0 percent; 23.0 percent


Question: A company invested in a new machine that will generate revenues of $35,000 annually for seven years. The company will have annual operating expenses of $7,000 on the new machine. Depreciation expense, included in the operating expenses, is $4,000 per year. The expected payback period for the new machine is 5.2 years. What amount did the company pay for the new machine?

Choices:
- $145,600
- $161,200
- $166,400
- $182,000


Question: Which of the following items is not subject to the application of intraperiod income tax allocation?

Choices:
- Discontinued operations
- Income from continuing operations.
- Extraordinary gains and losses
- Operating income.


Question: Skytop Co. a nonprofit entity is considering acquiring a machine for $80000 that will produce uniform cash inflows of $25000 for four years. Skytop evaluates capital projects using discounted cash flows at a cost of capital of 10% per year. Based upon the following table what action should Skytop take regarding acquisition of the machine and why? Future value of $1 for 4 years at 10% $1.464 Present value of $1 for 4 years at 10% $0.683 Future value of $1 ordinary annuity for 4 years at 10% $4.641 Present value of $1 ordinary annuity for 4 years at 10% $3.170 Acquire: Reason:

Choices:
- Yes Net cash flow is $20000
- Yes Net future value is $36025
- No Net present value is ($750)
- No Net present value is ($8750)


Question: In return for a 20% partnership interest, Skinner contributed $5,000 cash and land with a $12,000 basis and a $20,000 fair market value to the partnership. The land was subject to a $10,000 mortgage that the partnership assumed. In addition, the partnership had $20,000 in recourse liabilities that would be shared by partners according to their partnership interests. What amount represents Skinner’s basis in the partnership interest?

Choices:
- $27,000
- $21,000
- $19,000
- $13,000


Question: A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?

Choices:
- $185,000
- $190,000
- $195,000
- $200,000


Question: Stone Co. had the following consignment transactions during December year 1: Inventory shipped on consignment to Omega Co. $36000 Freight paid by Stone $1800 Inventory received on consignment from Gamma Co. $24000 Freight paid by Gamma $1000 No sales of consigned goods were made through December 31 year 1. What amount of consigned inventory should be included in Stone's December 31 year 1 balance sheet?

Choices:
- $24,000
- $25,000
- $36,000
- 37800


Question: Dawn Corp. uses a standard cost system. During the year both the labor rate variance and the labor efficiency variance were unfavorable. Dawn wrote the variances off directly to cost of goods sold. If Dawn had allocated the variances to work in process finished goods and cost of goods sold instead what would have been the effects on current ratio and net income? Current Net ratio income

Choices:
- Increases Increases
- Increases Decreases
- Decreases Increases
- Decreases Decreases


Question: While performing certain nonaudit services for an insurance company, a professional accountant is asked to recommend the appropriate accounting treatment for a weather hedge transaction. The accountant has worked with financial hedges but has no experience with weather hedges. Which of the following actions by the accountant would be in compliance with the IFAC Code of Ethics for Professional Accountants?

Choices:
- Agree to recommend the appropriate accounting treatment after performing sufficient research on weather hedges.
- Refuse to conduct the research and make a recommendation, because of insufficient experience.
- Refuse to conduct the research and make a recommendation, because of a conflict of interest.
- Agree with the accounting treatment recommended by the company’s hedge fund trader.


Question: Rigg Steele and Urco Corps. all accrual-basis calendar-year C corporations have only voting common stock outstanding. Rigg owns 85 percent of Steele and 40 percent of Urco. Steele owns 50 percent of Urco. Which group of corporations qualifies as an affiliated group and may join in the filing of a consolidated federal income tax return?

Choices:
- Rigg and Urco.
- Urco and Steele.
- Rigg Steele and Urco.
- An affiliated group does not exist.


Question: A CPA has been requested by a former audit client to reissue the auditor's report for the prior period. Before reissuing the report, the CPA should

Choices:
- Obtain a letter of representation from the former client's management.
- Make inquiries of the former client's attorney regarding pending litigation.
- Review the former client's records to verify its compliance with debt and loan agreements.
- Consider whether there is substantial doubt about the former client's ability to continue as a going concern.


Question: A government entity is required to include a statement of cash flows in which of the following financial statements?

Choices:
- Governmental fund financial statements.
- Government-wide financial statements.
- Proprietary fund financial statements.
- Fiduciary fund financial statements.


Question: In which of the following situations would there be inelastic demand?

Choices:
- A 5% price increase results in a 3% decrease in the quantity demanded.
- A 4% price increase results in a 6% decrease in the quantity demanded.
- A 4% price increase results in a 4% decrease in the quantity demanded.
- A 3% price decrease results in a 5% increase in the quantity demanded.


Question: Bay Co. incurred legal fees in defending its patent rights. These legal fees should be capitalized when the outcome of the litigation is Successful Unsuccessful

Choices:
- Yes Yes
- Yes No
- No No
- No Yes