Gleim 3.3
Carter Co. paid $1,000,000 for land 3 years ago. Carter estimates it can sell the land for $1,200,000, net of selling costs. If the land is not sold, Carter plans to develop the land at a cost of $1,500,000. Carter estimates net cash flow from the development in the first year of operations would be $500,000. What is Carter's opportunity cost of the development?
$1,200,000
A manufacturer performed an analysis of its product's price point in an effort to meet its customers' demand without experiencing excess inventory. Price Point Supply Demand $4 20 10 3 15 15 2 10 20 1 5 25 The manufacturer uses just-in-time inventory processes, and demand for the product is elastic. Which of the following prices should management use in order to address the efforts above while maximizing profits?
$3
A company had a choice between Project X and Project Y. The net present value of Project X is $1,000,000, and the net present value of Project Y is $750,000. The company chose Project X. What is the opportunity cost of that decision?
$750,000
The price elasticity of demand for a good is 2.0, and the quantity demanded is 5,000 units. The price increases by 10%. What is the new quantity demanded?
4,000
In which of the following situations would there be inelastic demand?
A 5% price increase results in a 3% decrease in the quantity demanded
A CPA wishes to determine how various issuers have complied with the disclosure requirements in a new Accounting Standards Update. Which of the following information sources would the CPA most likely consult for this information?
AICPA Accounting Trends & Techniques.
A CPA wishes to determine how various issuers have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information?
AICPA Accounting Trends and Techniques.
In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result?
Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.
When an auditor obtains an understanding of the entity and its environment, including its internal control, which of the following is the most likely order of performing the steps A through C below? A=Tests of controls B=Preparation of a flowchart documenting the understanding of the client's internal control C=Substantive procedures
BAC.
A company currently sells 100,000 units of product A at $10 per unit. The company also sells 100,000 units of product B at the same price. The company raises the price of both products by 10%. Product A has an elasticity of 1.5. Product B has an elasticity of 3.0. Which of the following effects will the price increase most likely have on company revenues?
Company revenues will decrease for both products.
The primary purpose of the consumer price index (CPI) is to
Compare relative price changes over time.
Which of the following indicators is used by the federal government to measure inflation?
Consumer price index.
A city ordinance that freezes rent prices may cause
Demand for rental space to exceed supply.
An auditor most likely obtains an understanding of a new client to
Identify areas of audit emphasis.
A decrease in which economic indicator would most appropriately encourage a business owner to move forward on a planned expansion?
Initial claims for unemployment.
Which of the following procedures would an auditor most likely perform before auditing the balance sheet?
Obtain an understanding of the client's internal control activities.
Which of the following options describes the phases of business cycle, in order of occurrence?
Peak, recession, trough, recovery.
Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should
Perform risk assessment procedures.
Product demand increases and product supply decreases. Which of the following statements is correct regarding resulting market changes?
Price Increases Quantity Uncertain
A firm has a perfectly inelastic supply curve, and it faces a downward sloping demand curve and increased demand. Which of the following results best describes an increase in demand when the supply curve is constant?
Price will rise, and quantity will be constant.
A company with limited production resources that is currently using Strategy C provides the following production information: Strategy Units Produced Product X Units Produced Product Y A0 200 B100 180 C200 150 D300 100 E400 0 The company would encounter what opportunity cost if it doubled its production of Product X?
Production of Product Y would be eliminated.
A company has a policy of frequently cutting prices to increase sales. Product demand is significantly elastic. What impact would this have on the company's situation?
Quantity increases proportionally more than the price declines.
What does the consumer price index measure?
Rate of inflation.
To obtain an understanding of a continuing client in planning an audit, an auditor most likely would
Read internal audit reports.
A company increased the price of its products and noted subsequent decreases in demand as below: Price increase Demand decrease Product A 20% 40% Product B 30% 20% The data above best support which of the following conclusions regarding the price elasticity of demand for the two products?
Substitutes are more readily available for Product A than for Product B.
Which of the following statements indicates that the auditor has gained a sufficient understanding of a client's internal controls related to the sales order process?
The auditor noted in a narrative that the documentation for the sales order system showed the printing of a shipment-exception report listing noninvoiced shipments.
The demand curve for a product reflects which of the following?
The impact that price has on the amount of a product purchased.
Which of the following characteristics would indicate that an item sold would have a relatively high price elasticity of demand?
The item has many similar substitutes.
When the demand for a product is inelastic, a decrease in price has what effect on the number of units sold and total revenue?
The percentage change in price will be greater than the percentage change in quantity, and total revenue will fall.
The CPA reviewed the minutes of a board of director's meeting of LQR Corp., an audit client. An order for widget handles was outsourced to SDT Corp. because LQR could not fill the order. By having SDT produce the order, LQR was able to realize $100,000 in sales profits that otherwise would have been lost. The outsourcing added a cost of $10,000, but LQR was ahead by $90,000 when the order was completed. Which of the following statements is correct regarding LQR's action?
The use of resource markets outside of LQR involves opportunity cost.
Jackson Co. is considering a project that will use 2,000 square feet of storage space at one of its facilities to store used equipment. What will determine Jackson's opportunity cost?
The value of the next best use of the space.
An auditor is required to obtain an understanding of the entity's business, including business cycles and reasons for business fluctuations. What is the audit purpose most directly served by obtaining this understanding?
To assist the auditor to accurately interpret information obtained during an audit.
Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?
Tour the client's facilities.
Two companies make handcrafted wooden ducks and rocking horses. Information about each company's weekly production alternatives is as follows: Company Ducks Horses Treasure 60 15 Gem 24 12 Production possibilities are linear. The annual market for ducks in the relevant shipping range is saturated at 4,160 ducks. Treasure and Gem enter into a trade agreement. According to the principle of comparative advantage, which company should produce which product and why?
Treasure should produce ducks because it only needs to sacrifice one-fourth of a horse compared to Gem's one-half of a horse.
An auditor reviews an audit client's accounting policies when considering which of the following matters?
Understanding the entity and its environment, including its internal control.
Under which of the following conditions is the supplier most able to influence or control buyers?
When the supplier does not face the threat of substitute products.
