Auditing and Attestation for the CPA Exam: Kaplan CPA Review

2) In 1992, Cape Company recorded book income of $140,000. Included in that amount was $50,000 for meal and entertainment expenses and $40,000 for federal income tax expenses. In Cape's schedule M-1 of Form 1120, which reconciles book income and taxable income, what amount should be reported as taxable income.

A. $205,000

B. $190,000

C. $180,000

D. $140,000

3) Peters Co. repairs computers. On February 9, 19X1, Stark Electronics Corp. sold Peters a circuit tester on credit. Peters executed an installment note for the purchase price, a security agreement covering the tester, and a financing statement that Stark filed on February 11, 19X1. On April 13, 19X1, creditors other than Stark filed an involuntary petition in bankruptcy against Peters. What is Stark's status in Peters' bankruptcy?

A. Stark will be treated as an unsecured creditor because Stark did not join in the filing against Peters.

B. Stark's security interest constitutes a voidable preference because the financing statement was not filed until February 11.

C. Stark's security interest constitutes a voidable preference because the financing statement was filed within ninety days before the bankruptcy proceeding was filed.

D. Stark is a secured creditor and can assert a claim to the circuit tester that will be superior to the claims of Peters' other creditors.

4) Which of the following best describes the effect of the assignment of an interest in a general partnership?

A. The assignee becomes a partner.

B. The assignee is responsible for a proportionate share of past and future partnership debts.

C. The assignment automatically dissolves the partnership.

D. The assignment transfers the assignor's interest in partnership profits and surplus.

5) On December 15, Blake Corp. telephoned Reach Consultants, Inc. and offered to hire Reach to design a security system for Blake's research department. The work would require two years to complete. Blake offered to pay a fee of $100,000 but stipulated that the offer must be stated in writing and an acceptance received by Blake no later than December 20.

On December 20, Reach faxed a written acceptance to Blake. Blake's offices were closed on December 20, and Reach's fax was not seen until December 21.

Reach's acceptance contained the following language.

"We accept your $1,000,000 offer. Weaver has been assigned $5,000 of the fee as payment for sums owed Weaver by Reach. Payment of this amount should be made directly to Weaver."

On December 22, Blake sent a signed memo to Reach rejecting Reach's December 20 fax but offering to hire Reach for a $75,000 fee. Reach telephoned Blake on December 23 and orally accepted Blake's December 22 offer.

Blake's December 15 offer had to be in writing to be a legitimate offer.

A. True

B. False

6) The profession's ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee, and it is apparent at the time of the representation that

A. actual fee would be substantially higher.

B. actual fee would be substantially lower than the fees charged by other CPAs for comparable services.

C. CPA would not be independent.

D. fee was a competitive bid.

7) Which of the following will not be discharged in a bankruptcy proceeding?

A. Claims resulting out of an extension of credit based upon false representations.

B. Claims of secured creditors which remain unsatisfied after their receipt of the proceeds from the disposition of the collateral.

C. Claims for unintentional torts which resulted in bodily injury to the claimant.

D. Claims arising out of breach of a contract by the debtor.

Auditing and Attestation - Practice Questions

1) Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?

A. Supporting records that should be readily available are frequently not produced when requested.

B. Reportable conditions previously communicated have not been corrected.

C. Clerical errors are listed on a monthly computer-generated exception report.

D. Differences are discovered during the client's annual physical inventory count.

2) An auditor is testing internal control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher:

A. Constitutes a deviation

B. Has been properly voided

C. Cannot be located

D. Represents an immaterial dollar amount

3) In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are:

A. Consistent with prior periods

B. Similar to industry guidelines

C. Objective and not susceptible to bias

D. Deviations from historical patterns

4) An auditor may achieve audit objectives related to particular assertions by

A. Performing analytical procedures

B. Adhering to a system of quality control

C. Preparing auditor working papers

D. Increasing the level of detection risk

5) Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client-operating personnel being aware of the testing process?

A. Integrated test facility.

B. Input controls matrix.

C. Parallel simulation.

D. Data entry monitor.

Financial Accounting and Reporting - Practice Questions

1) A material loss should be presented separately as a component of income from continuing operations when it is

A. An extraordinary item.

B. A cumulative effect type change in accounting principle.

C. Unusual in nature and infrequent in occurrence.

D. Not unusual in nature but infrequent in occurrence.

2) Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by Leaf over the life of this note?

A. $5,045

B. $5,560

C. $8,000

D. $9,000

3) When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?

A. When received.

B. At the inception of the lease.

C. At the expiration of the lease.

D. Over the life of the lease.

4) Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 19X4. The cumulative effect of this change should be reported in Lore's 19X4 financial statements as a

A. Prior period adjustment resulting from the correction of an error.

B. Prior period adjustment resulting from the change in accounting principle.

C. Component of income before extraordinary item.

D. Component of income after extraordinary item.

5) Which of the following information should be disclosed in the summary of significant accounting policies?

A. Refinancing of debt subsequent to the balance sheet date.

B. Guarantees of indebtedness of others.

C. Criteria for determining which investments are treated as cash equivalents.

D. Adequacy of pension plan assets relative to vested benefits.

6) Which fund may account for a university's internally designated fund, the income from which will be used for a specified purpose?

A. Endowment fund

B. Term endowment fund

C. Quasi-endowment fund

D. Restricted current fund

7) Briar Co. signed a government construction contract providing for a formula price of actual cost plus 10 percent. In addition, Briar was to receive one-half of any savings resulting from the formula price being less than the target price of $2,200,000. Briar's actual costs incurred were $1,920,000. How much should Briar receive from the contract?

A. $2,060,000

B. $2,112,000

C. $2,156,000

D. $2,200,000

8) Fixed assets donated to a governmental unit should be recorded:

A. at estimated fair value when received.

B. at the lower of donor's carrying amount or estimated fair value when received.

C. at the donor's carrying amount.

D. as a memorandum entry only.

Business Environment and Concepts - Practice Questions

1) Which of the following statements is correct regarding a limited partnership?

A. It can be created with limited liability for all partners.

B. It can only be created pursuant to a statute providing for the formation of limited partnerships.

C. At least one general partner must also be a limited partner.

D. The general partner must make a capital contribution.

2) A bank is considering building a branch on a piece of property it already owns. Which of the following cash flows should NOT be considered in the capital budgeting analysis? The:

A. $50,000 the firm will forgo in lost revenue from the sale of the property if the company decides to build.

B. several hundred customers that will switch from alternative branches to the new branch if the bank makes the investment.

C. shipping and installation charges the bank must spend to get equipment in the new branch.

D. $100,000 spent to determine whether there are any environmental issues regarding the property.

3) Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of materials handled?

A. Economic order quantity analysis.

B. Multiple regression analysis.

C. Probability analysis.

D. Correlation analysis.

4) The most likely strategy to reduce the breakeven point would be to:

A. Decrease the fixed costs and increase the contribution margin.

B. Increase the fixed costs and decrease the contribution margin.

C. Increase both the fixed costs and the contribution margin.

D. Decrease both the fixed costs and the contribution margin.

5) A disaster recovery plan usually has all of the following elements EXCEPT:

A. identifying users that would be affected.

B. identifying key personnel responsible for handling recovery operations.

C. identifying key applications.

D. documentation and training.

6) When an operator enters customer account information, the system gives an error prompt that the city and zip code do not match. This is most likely due to what control?

A. Hash total.

B. Missing data check.

C. Combination check.

D. Control total.

7) If the Federal Reserve wanted to reduce the supply of money as part of an anti-inflation policy, it might:

A. buy U.S. securities on the open market.

B. buy U.S. securities directly from the Treasury.

C. lower the discount rate.

D. increase the reserve requirements.

8) The total market value of all final goods produced by the citizens of a country is called:

A. gross domestic product.

B. personal income.

C. gross national product.

D. disposable income.