ACCT 303 Exam Review

What type of tax is a sales tax? (a)Income tax (b)Consumption tax (c)Wealth transfer tax (d)Turnover tax

(b)Consumption tax

Which of the following is an objective of taxation? Stimulate the economy All of the above Raise revenue Foster social goals

All of the above

Which of the following paid tax return preparers must have a preparer tax identification number? Enrolled Agents Attorneys CPAs All of the above

All of the above

Which type of audit is most frequently used for examination of business returns? Noncompliance audit Correspondence audit Field audit Office audit

Field audit

Which of the following is a tax? Water usage fee Import duty Dog license Parking fine

Import duty

Inspect the work of audit firms engaged in the audit of public companies.

PCAOB

Produce audit standards for public companies.

PCAOB

10. An example is the activities required by the federal government for loans associated with the "Term Asset-Backed Securities Loan Facility" (TALF).

T. Attest engagement

The Board of Directors: Entry field with correct answer a) Reports to management. d) All of the above. c) Is elected by the shareholders. b) Runs the company on a day-to-day basis.

c) Is elected by the shareholders.

What characteristic of a tax states that taxpayers with equal incomes should pay equivalent amounts of taxes? (a)Horizontal equity (b)Vertical equity (c)Certainty (d)Convenience

(a)Horizontal equity

The primary purpose of effective tax planning is: (a)Minimizing tax liability (b)Repealing all federal taxes (c)Converting capital gain into ordinary income (d)Deferring deductions and accelerating income

(a)Minimizing tax liability

Which tax return preparers are required to obtain preparer tax identification numbers?

"A PTIN must be obtained by all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS except the following:

Ethan received $130,000 in salary in 2017. What is his FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on the 2017 maximum of $127,200, and the FUTA rate is 6% on a $7,000 maximum? $9,771 $9,945 $9,065 $9,232

($130,000 x 1.45%) + ($127,200 x 6.2%) = $9,771.4. FUTA is a separate tax.

Kate received $130,000 in salary in 2017. What is her FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on a maximum of $127,200 in 2017? $9,771 $9,945 $7,886 $8,060

($130,000 x 1.45%) + ($127,200 x 6.2%) = $9771.4

While preparing this year's tax return, a CPA discovers that the client has underpaid his income taxes due to an omission on last year's tax return, which was prepared by another accountant. According to the Statement on Standards for Tax Services, the CPA preparing this year's tax return: (a)Must report it immediately to the IRS. (b)Must advise the client of the omission and recommend appropriate action. (c)Should refuse to sign the current tax return. (d)Is not expected to address issues that relate to previous tax returns.

(b)Must advise the client of the omission and recommend appropriate action.

Which of the following is correctly categorized as a tax? (a)The dog license fee (b)The annual property tax on your home (c)An assessment for putting streetlights in front of your home that increases the home's value (d)The bond a person must post to get out of jail

(b)The annual property tax on your home

Which of the following entities does not pass its income directly through to its owners? (a)Sole proprietorship (b)Partnership (c)C corporation (d)S corporation

(c)C corporation

George owns 1,000 shares of ABC stock that he purchased a little more than 11 months ago at a cost of $5 per share. The stock is now trading for $40 per share. George's tax advisor suggested that he wait another month before selling the stock. This is an example of which tax planning strategy? (a)Avoiding income recognition (b)Deferring income recognition (c)Shifting income (d)Changing the character of income

(d)Changing the character of income

Which of the following applies only to individual taxpayers and not to corporations? (a)Taxable income (b)Estimated tax payments (c)Gross income (d)Lower tax rates for long-term capital gains

(d)Lower tax rates for long-term capital gains

Regarding the Small Case Division of the Tax Court, which of the following statements is correct? (a)The IRS (but not the taxpayer) can appeal an adverse judgment. (b)The taxpayer (but not the IRS) can appeal an adverse judgment. (c)Either the IRS or the taxpayer can appeal an adverse judgment. (d)Neither the IRS nor the taxpayer can appeal an adverse judgment.

(d)Neither the IRS nor the taxpayer can appeal an adverse judgment.

Primary sources of authority include all of the following except: (a)Treasury Regulations (b)Tax Court decisions (c)Internal Revenue Code (d)Tax journals

(d)Tax journals

William is single and had salary income from his position as Chief Financial Officer of Zippy Bank of $450,000 (the 39.6 tax bracket). He also had $35,000 in income from the dividends on the stock of his previous employer. What tax rate will apply to William's dividend income? 39.6% 15% 20% 35%

20%

Ryan filed his tax return 40 days after the due date and included a check for the $1,800 balance due with the return. Ryan's failure-to-file penalty is 0.5% per month (or partial month) up to a maximum of 25% 25% 20% per month (or partial month) 5% per month (or partial month) up to a maximum of 25%

5% per month (or partial month) up to a maximum of 25%

Which of the following is a type of wealth tax? A tax on property given to a grandchild A tax on a person's salary A tax on stocks owned by the taxpayer A tax on purchases made at a department store

A tax on stocks owned by the taxpayer

Produce audit standards for non-public companies.

AICPA

Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company? Entry field with correct answer A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure. A compilation engagement to render an opinion on the entity's internal control structure. A consulting engagement to provide constructive advice to the entity on its internal control structure. An audit engagement to render an opinion on the entity's internal control structure. An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure

An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure

One of the premier organizations for forensic accountants is the: Entry field with correct answer Association of Ligation Support. Association of Legal Investigators. Association of Certified Fraud Examiners. Association of Fraud Investigators. Association of Investigative Forensic Services.

Association of Certified Fraud Examiners.

Appoint the auditors.

Audit committee of the board of directors

Evaluate evidence.

Auditor

Gather evidence.

Auditor

Propose adjustments to the financial statements intended to correct errors identified during the audit.

Auditor

When may a CPA use estimates in the preparation of a client's tax return?

CPA may use client's estimates to prepare tax returns if 1. It is impractical to obtain exact data (numerous transactions for small amts, records are missing/not available). 2. Estimated amts are reasonable given known facts 3. Estimates do not imply greater accuracy than truly exists No disclosure required unless: *Taxpayer has died or is ill. *Taxpayerhasn't received their K-1. *There is a pending litigation bearing on return. *Or a Fire, computer failure, or natural disaster has destroyed relevant records.

5. An accepted basis of accounting that differs from GAAP.

B. OCBOA

1. A subset of the Board of Directors that, for a public company, has direct responsibility for hiring, compensation and oversight of the external auditor.

C. Audit committee

Design and implement the ICFR.

Client/firm

Make assertions.

Client/firm

Prepare the financial statements.

Client/firm

William lives in Delaware but works for a company that has offices in both Maryland and Pennsylvania. William spent four months working in Pennsylvania and 8 months working in Maryland. Only Delaware can impose a state income tax on his income. Only Maryland can impose a state income tax on his income as he worked there the longer time period. Only Pennsylvania and Maryland can impose state income taxes on his income. Delaware, Pennsylvania, and Maryland can impose state income taxes on his income.

Delaware, Pennsylvania, and Maryland can impose state income taxes on his income.

Explain the difference between tax avoidance and tax evasion.

Essentially, the difference between avoidance and evasion is legality. Tax avoidance is legally exploiting the tax system to reduce current or future tax liabilities by means not intended by parliament. It often involves artificial transactions that are contrived to produce a tax advantage.

Which one of the following can be helpful in identifying events that motivate fraud? Entry field with correct answer Evidence outside the company's financial records. Restricted databases. Employees living beyond their means. Large business receipts. Corporate and partnership records.

Evidence outside the company's financial records.

3. Client-related information used by the auditor to come to an audit conclusion.

F. Evidence

9. The set of audit standards that must be followed when auditing public companies.

G. AS

4. Using client information in engagements related to fraud, business valuation and legal disputes.

H. Forensic accounting

Which of the following does not deal with a CPA's standard of conduct Treasury Circular 230 AICPA Code of Conduct Internal Revenue Service Manual Statement of Standards for Tax Services

Internal Revenue Service Manual

6. Deals only with efficiency and effectiveness issues.

R. Operational auditing

Which of the following types of returns does not have an unextended due date of the 15th day of the 4th month after the end of the tax year? S corporations Individuals C Corporations Trusts

S corporations

Which of the following types of taxes is levied by almost all states on some or all goods purchased? Income tax Wealth transfer tax Sales tax Property tax

Sales tax

Explain how tax compliance differs from tax planning.

Tax compliance engagements prepare tax returns. Often these are closed-fact engagements because all the facts have already occurred. They also represent clients at an IRS audit. In tax planning (sometimes referred to as open-fact engagements), usually not all of the relevant facts have occurred. Tax planning evaluates the tax consequences associated with a transaction and making recommendations that will achieve the desired objective at a minimal tax cost.

By what right does the U.S. levy an income tax on individuals? The 13th Amendment to the Constitution An Act of Congress ratified by the states Public Law 1913 The 16th Amendment to the Constitution

The 16th Amendment to the Constitution

The Institute of Internal Auditors standards are grouped under 2 broad categories. A. Briefly list and explain the categories of the internal auditing standards.

The 2 categories of internal auditing standards are: 1. Attribute standards that set the characteristics of internal audit departments and the professional that work in those departments. 2. Performance standards that establish requirements when performing an engagement.

The Internal Revenue Service is part of: Congress The Justice Department The Treasury Department The Office of Budget and Management

The Treasury Department

The Mercury Corporation must decide whether to invest in some new machinery for its business. Which tax rate is the most relevant for making this decision? The average tax rate The marginal tax rate The nominal tax rate The effective tax rate

The marginal tax rate

Which of the following statements describes the correct relationship between marginal and average tax rates in a progressive tax system? The marginal tax rate is higher than the average tax rate. The marginal and average tax rates are the same. The average tax rate will always be half of the marginal tax rate. The average tax rate is higher than the marginal tax rate.

The marginal tax rate is higher than the average tax rate.

Explain what is meant by the statute of limitations.

The statute of limitations is the period of time beyond which legal actions or changes to the tax return cannot be made by taxpayer or IRS. There are 3 years from date of filing or due date of return (whichever is later) and there are 6 years if more than 25% of gross income is inadvertently omitted (not excess deductions).

A high DIF score indicates which of the following? IRS will automatically grant an extension of time to appeal The taxpayer is likely to get a refund The taxpayer's chances of audit are substantially less than 2% The taxpayer's chances of audit are fairly high

The taxpayer's chances of audit are fairly high

Which of the following types of taxes is a consumption tax? Use tax Estate tax Income tax Gift tax

Use tax

8. Entity that has produced one of the frameworks of internal control over financial reporting that is used by management and auditors.

V. COSO

Which type of tax is a real property tax? Income tax Consumption tax Wealth tax Use tax

Wealth tax

The Institute of Internal Auditors standards are grouped under 2 broad categories. B. Within each category there are special standards written for specific types of audits. What are the 2 types of special standards?

Within the standards there are specific standards for attestation engagements and for consulting engagements.

What is a tax? a penalty a fine a forced payment to the government a voluntary payment to the government for services received

a forced payment to the government

Which of the following individuals could be a member of the Audit Committee? Entry field with correct answer d) None of the above. b) A member of the PCAOB. c) An audit partner of the CPA firm who performs the annual audit. a) A member of the company's Board of Directors.

a) A member of the company's Board of Directors.

Which of the following is an assertion? Entry field with correct answer c) The statement by management regarding the appointment of auditors. d) The statement by management that the firm will close its branch office because of snow. a) A statement made by management regarding the collectability of accounts receivable. b) The audit firm's estimation of the client's inventory obsolescence.

a) A statement made by management regarding the collectability of accounts receivable.

A taxpayer will receive a 30-day letter after a 90-day notice of deficiency notifying the taxpayer there is only a 30-day period to file a protest in court as the first notice of a proposed deficiency only if the taxpayer is more than 30 days late in filing the tax return. to provide notification that the taxpayer's return has been selected for audit.

as the first notice of a proposed deficiency

The audit engagement team: Entry field with correct answer a) Is chosen by the client. b) Is some combination of partners, managers, seniors and associates c) is a mix of CPA firm and client employees. d) None of the above.

b) Is some combination of partners, managers, seniors and associates

Who is responsible for the design and operation of ICFR? Entry field with correct answer a) The auditor. b) The company's management. c) Both A and B. d) None of the above.

b) The company's management.

Which of the following would not be considered audit evidence? Entry field with correct answer b) The electronic work paper program package used by the auditor to produce the electronic work papers. d) Electronic images of the front and back of checks that the company has written. a) Invoices received by the company and retained on the company's IT system in electronic form. c) Hard copy minutes of the Board of Directors and Audit Committee meetings.

b) The electronic work paper program package used by the auditor to produce the electronic work papers.

Auditors consider internal control during the audit of a nonpublic company: Entry field with correct answer d) Only if they are sure it will be helpful when performing the financial statement audit. a) For all the same purposes as on an audit of a public company. b) To identify areas of risk and help to plan the financial statement audit. c) To help to plan the financial statement audit and issue an opinion on effectiveness.

b) To identify areas of risk and help to plan the financial statement audit.

Auditors communicate audit results to users concerning a company's financial statements by: Entry field with correct answer c) Issuing a report about the financial statements. a) Issuing a report on the effectiveness of ICFR. b) Issuing the financial statements. d) None of the above.

c) Issuing a report about the financial statements.

Auditing is defined as a: Entry field with correct answer c) Systematic process. a) Set pattern of tests. b) Random process. d) All of the above.

c) Systematic process.

Who is responsible for oversight of the integrated audit function? Entry field with correct answer d) None of the above. a) Shareholders. b) Officers of the company. c) The audit committee.

c) The audit committee.

A "clean" audit report states that: Entry field with correct answer b) The internal control environment is operating well. a) There are no errors in the financial statements. c) The auditors evaluated evidence. d) All of the above.

c) The auditors evaluated evidence.

What is the purpose of a financial statement audit? Entry field with correct answer a) To provide assurance that the company is solvent. b) To provide assurance that the company has an effective internal control system that can produce fair financial statements. c) To provide assurance that the financial statements are reliable. d) Both B and C.

c) To provide assurance that the financial statements are reliable.

The SEC requires publicly traded companies to file Entry field with correct answer c) 10Ks that include audited annual financial statements, with or without a management report on ICFR. b) 10Qs that include audited quarterly financial statements. a) 10Ks that include audited quarterly financial statements and audited management reports on internal control over financial reporting. d) 10Ks that include annual financial statements, a management report on ICFR, and the audit opinions resulting from an integrated audit.

d) 10Ks that include annual financial statements, a management report on ICFR, and the audit opinions resulting from an integrated audit.

Which of the following organizations is considered to be a public company? Entry field with correct answer d) A firm whose stock is registered with the SEC. b) A partnership of doctors. a) A firm who's privately held stock is owned exclusively by an individual. c) A privately-held firm controlled by three family members.

d) A firm whose stock is registered with the SEC.

COSO: Entry field with correct answer c) Is the acronym widely used to refer to the Committee of Sponsoring Organizations of the Tredway Commission. a) Is the body that established an internal control standards framework referenced by the PCAOB. b) Published a document that explains what an internal control system should be like to be effective. d) All of the above.

d) All of the above.

The Securities and Exchange Commission: Entry field with correct answer b) Authorizes all PCAOB standards before they become effective. a) Is a government entity. c) Can reject company filings or suspend trading of company stocks. d) All of the above.

d) All of the above.

Financial statements must be prepared: Entry field with correct answer c) In accordance with OCBOA. d) Any of the above, depending on which set of standards the circumstances dictate as applicable. a) In accordance with GAAP. b) In accordance with IFRS.

d) Any of the above, depending on which set of standards the circumstances dictate as applicable.

A public company must: Entry field with incorrect answer a) Register with the SEC. b) Undergo an integrated audit. c) Trade on a stock exchange. d) Both A and B.

d) Both A and B.

Assertions are: Entry field with correct answer a) Audited by the auditors. b) Declarations made by management. c) Declarations made by the auditor. d) Both A and B.

d) Both A and B.

Which functions do audit reports serve for the capital markets? Entry field with correct answer a) Enhance confidence in financial statements. b) Provide guarantees regarding the quality of investments. c) Provide assurance that financial statements and management's reports on internal control over financial reporting provide reliable information. d) Both A and C

d) Both A and C

For an integrated audit to be possible: Entry field with correct answer c) The entity must have sufficient books, records and other underlying evidence so that the auditor can determine whether there is a high degree of correspondence between the underlying evidence and the financial statements. a) Established criteria must exist against which the financial statements and ICFR can be compared. b) The auditor must have sufficient knowledge of both the AICPA SAS and PCAOB AS. d) a and c

d) a and c

When appreciated property is transferred, the gift tax is based on the donor's original cost increased by half of the appreciation the donor's original cost of the property fair market value of the property on the date of the gift replacement cost of the property

fair market value of the property on the date of the gift

When issuers file registration statements with the SEC for public offerings of securities, they include: Entry field with correct answer suitable criteria. assertions. financial statements and other financial information. a compilation. limited assurance.

financial statements and other financial information.

Fraud investigations and accounting work to support legal actions refers to: Entry field with correct answer identity theft. customer fraud. forensic accounting. internal auditing. vendor fraud.

forensic accounting.

Forensic accountants rely on the: Entry field with correct answer customer fraud theory. fraud triangle theory. tax evasion theory. identify theft theory. vendor fraud theory.

fraud triangle theory.

The forensic accountant's mind-set is that all cases may involve: Entry field with correct answer materiality thresholds. attitudes of employees. illegal acts. management's values. reward systems.

illegal acts.

If the due date for a tax return is extended for a taxpayer who has a $2,000 balance due, the taxpayer has 6 months following the original due date to pay the $2,000 due without interest has 30 days following the original due date to pay the $2,000 due without interest has 60 days following the original due date to pay the $2,000 due without interest must pay the tax due by the original due date to avoid interest

must pay the tax due by the original due date to avoid interest

The following are all principles of the Institute of Internal Auditors Code of Ethics except: Entry field with correct answer competency. confidentiality. reliability. integrity. objectivity.

reliability.

Forensic accounting stands apart from other career tracks in accounting and auditing because of its: Entry field with correct answer evidence evaluation. head start. current enthusiasm. unique aspects. places to go.

unique aspects.

According to the Statements on Standards for Tax Services, if a CPA discovers an error in a prior return prepared by another tax return preparer, the CPA should notify the client of the error and request permission to disclose the error to the IRS must immediately withdraw from the engagement is required to correct the error on the prior year's return even if it does not affect the current year's tax return is required to notify IRS immediately

should notify the client of the error and request permission to disclose the error to the IRS

The IRS must pay interest on tax refunds paid later than 45 days after the due date. The IRS never pays interest on tax refunds. tax refunds paid later than 30 days after the due date. all tax refunds.

tax refunds paid later than 45 days after the due date.

Internal auditors are guided by professional standards known as: Entry field with correct answer the Attribute Performance Standards for the Professional Practice of Internal Auditing. the Attribute Standards for the Professional Practice of Internal Auditing. the Consulting Standards for the Professional Practice of Internal Auditing. the SOX Act. the International Standards for the Professional Practice of Internal Auditing.

the International Standards for the Professional Practice of Internal Auditing.