Practice Final Exam 1, Practice Final Exam 2, Practice Final Exam 3

Selected financial information for Kristina Company for the year just ended is shown below. Net income $2,000,000 Increase in net accounts receivable 300,000 Decrease in inventory 100,000 Increase in accounts payable 200,000 Depreciation expense 400,000 Gain on the sale of available-for-sale securities 700,000 Cash receivable from the issue of common stock 800,000 Cash paid for dividends 80,000 Cash paid for the acquisition of land 1,500,000 Cash received from the sale of available-for-sale securities 2,800,000 Kristina's cash flow from investing activities for the year is A. $1,300,000 B. $1,220,000 C. $2,800,000 D. $(1,500,000)

A. $1,300,000

Selected financial information for Kristina Company for the year just ended is shown below. Net income $2,000,000 Increase in net accounts receivable 300,000 Decrease in inventory 100,000 Increase in accounts payable 200,000 Depreciation expense 400,000 Gain on the sale of available-for-sale securities 700,000 Cash receivable from the issue of common stock 800,000 Cash paid for dividends 80,000 Cash paid for the acquisition of land 1,500,000 Cash received from the sale of available-for-sale securities 2,800,000 Assuming the indirect method is used, Kristina's cash flow from operating activities for the year is A. $1,700,000 B. $2,400,000 C. $2,000,000 D. $3,100,000

A. $1,700,000

The Sunra Corporation had the following data available for the current year: Gross profit on sales $40,000 Dividend income from nonaffiliated domestic corporations (not debt financed - 20%-owned) 2,000 Operating expenses (exclusive of charitable contributions) 28,000 Charitable contributions 1,500 Sunra's taxable income for the current year is A. $11,300 B. $12,700 C. $10,600 D. $11,200

A. $11,300

Ral Co.'s target gross margin is 60% of the selling price of a product that costs $5.00 per unit. The product's selling price per unit should be A. $12.50 B. $8.33 C. $7.50 D. $17.50

A. $12.50

On January 2, Year 1, Union Co. purchased a machine for $264,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 2, Year 4, Union determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $24,000. An accounting change was made in Year 4 to reflect the additional data. The accumulated depreciation for this machine should have a balance at December 31, Year 4, of A. $146,000 B. $179,000 C. $154,000 D. $160,000

A. $146,000

A company's target gross margin is 40% of the selling price of a product that costs $89 per unit. The product's selling price should be A. $148.33 B. $142.40 C. $124.60 D. $222.50

A. $148.33

Relevant information for product A follows: Actual variable overhead cost per hour $8.00 Standard variable overhead cost per hour $7.50 Actual hours 4,500 Standard hours 5,000 What was the variable overhead spending variance for product A? A. $2,250 unfavorable. B. $2,250 favorable. C. $4,000 unfavorable. D. $4,000 favorable.

A. $2,250 unfavorable.

William owns a four-unit apartment building for which he receives $500 per month per unit. Three of the units were rented for the entire 12 months. The fourth unit was occupied from January 1 to April 30, 2022. Upon vacating the unit the tenant was not refunded his security deposit of $500 due to damage to the unit. The unit was subsequently rented for 1 year beginning August 1, 2022. On August 1, 2022, the new tenant paid the first and last months' rent and a refundable security deposit of $500. What is William's rental income for 2022? A. $23,500 B. $24,000 C. $23,000 D. $22,500

A. $23,500

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:Property Basis Adjusted FairMarket Value Percentage of AceStock AcquiredLind Building $40,000 $82,000 60%Post Land $ 5,000 $48,000 40%The building was subject to a $10,000 mortgage that was assumed by Ace.What was Lind's basis in Ace stock? A. $30,000 B. $40,000 C. $0 D. $82,000

A. $30,000

In 2022, Garland Corp. contributed $40,000 to a qualified charitable organization. Garland's 2022 taxable income before the deduction for charitable contributions was $410,000. Included in that amount was a $20,000 dividends-received deduction. Garland also had carryover contributions of $5,000 from the prior year. In 2022, what amount can Garland deduct as charitable contributions? A. $43,000 B. $45,000 C. $41,000 D. $40,000

A. $43,000

John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in wholesaling operations. Ral's retained earnings at January 1, 2022, amounted to $1 million. For the year ended December 31, 2022, Ral's book income, before federal income tax, was $300,000. Included in the computation of this $300,000 was the following: Dividends received on 500 shares of stock of a taxable domestic corporation that had 1,000,000 shares of stock outstanding (Ral had no portfolio indebtedness.) $1,000What portion of the dividend revenue net of the dividends-received deduction should be included in Ral's 2022 taxable income? A. $500 B. $350 C. $650 D. $200

A. $500

Black Co., organized on January 2, Year 1, had pretax financial statement income of $500,000 and taxable income of $800,000 for the year ended December 31, Year 1. The only temporary differences are accrued product warranty costs, which Black expects to pay as follows: Year 2 $100,000 Year 3 50,000 Year 4 50,000 Year 5 100,000 The enacted income tax rates are 25% for Year 1, 30% for Year 2 through Year 4, and 35% for Year 5. Future profits will suffice to realize the full tax benefit of the deferred tax asset arising from the accrual of warranty costs. In its December 31, Year 1, balance sheet, what amount should Black report as a deferred tax asset? A. $95,000 B. $75,000 C. $90,000 D. $50,000

A. $95,000

Spark Co. buys cordless phones for $125 each and sells them for $200 each. Spark pays a sales commission of $25 per phone sold and monthly fixed costs are $3,000. Assuming Spark desired a profit of 10% of sales, how many units must Spark sell? A. 100 B. 400 C. 200 D. 600

A. 100

Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Rokat also purchases sufficient direct materials inventory to ensure that direct materials inventory is 60% of the following month's scheduled production. Rokat's sales budget in units for the next quarter is as follows: July 2,300 August 2,500 September 2,100 Rokat's ending inventories in units for June 30 are Finished goods 1,900 Direct materials (legs) 4,000 The number of tables to be produced by Rokat during August is A. 2,340 tables. B. 1,400 tables. C. 1,900 tables. D. 1,440 tables.

A. 2,340 tables.

A bond issued on June 1, Year 4, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, Year 4, is for a period of A. 7 months. B. 4 months. C. 6 months. D. 3 months.

A. 7 months.

Acquirer Corporation acquired for cash at $10 per share 100,000 shares of the outstanding common stock of Acquiree Company. The total fair value of the identifiable assets acquired minus liabilities assumed of Acquiree was $1.4 million on the acquisition date, including the fair value of its property, plant, and equipment (its only noncurrent asset) of $250,000. The consolidated financial statements of Acquirer Corporation and its wholly owned subsidiary must reflect A. A gain of $400,000. B. Goodwill of $150,000. C. A deferred credit of $150,000. D. A gain of $150,000.

A. A gain of $400,000.

Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client? A. A policy-making position in the client's finance division. B. A staff position in the client's research and development division. C. A marketing position related to the client's primary products. D. A senior position in the client's human resources division.

A. A policy-making position in the client's finance division.

Flexible budgets A. Accommodate changes in activity levels. B. Provide for external factors affecting company profitability. C. Are budgets that project costs based on anticipated future improvements. D. Are used to evaluate capacity use.

A. Accommodate changes in activity levels.

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because A. Accrued liabilities usually pertain to services of a continuing nature whereas accounts payable are the result of completed transactions. B. Evidence supporting accrued liabilities is nonexistent, whereas evidence supporting accounts payable is readily available. C. Accrued liability balances are less material than accounts payable balances. D. Accrued liabilities at year end will become accounts payable during the following year.

A. Accrued liabilities usually pertain to services of a continuing nature whereas accounts payable are the result of completed transactions.

During Year 4, Smith Co. filed suit against West, Inc., seeking damages for patent infringement. At December 31, Year 4, Smith's legal counsel believed that it was probable that Smith would be successful against West for an estimated amount in the range of $75,000 to $150,000, with all amounts in the range considered equally likely. In March Year 5, Smith was awarded $100,000 and received full payment thereof. In its Year 4 financial statements issued in February Year 5, how should this award be reported? A. As a disclosure of a contingent gain of an undetermined amount in the range of $75,000 to $150,000. B. As a disclosure of a contingent gain of $100,000. C. As a receivable and revenue of $100,000. D. As a receivable and deferred revenue of $100,000.

A. As a disclosure of a contingent gain of an undetermined amount in the range of $75,000 to $150,000.

The preparation of a comprehensive master budget culminates with the preparation of the A. Cash budget. B. Strategic budget. C. Capital investment budget. D. Production budget.

A. Cash budget.

Which of the following may not own shares in an S corporation? A. Corporations. B. Individuals. C. Estates. D. Trusts.

A. Corporations.

Black Co., organized on January 2, Year 1, had pretax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, Year 1. Black expected to maintain this level of taxable income in future years. The only temporary difference is for accrued product warranty costs, expected to be paid as follows: Year 2 $100,000 Year 3 50,000 Year 4 50,000 Year 5 100,000 The applicable enacted income tax rate is 30%. In Black's December 31, Year 1, balance sheet, the deferred income tax asset and related valuation allowance should be A. Deferred Tax Asset $90,000 Valuation Allowance $0 B. Deferred Tax Asset $90,000 Valuation Allowance $90,000 C. Deferred Tax Asset $0 Valuation Allowance $0 D. Deferred Tax Asset $0 Valuation Allowance $90,000

A. Deferred Tax Asset $90,000 Valuation Allowance $0

Because of a decline in market price in the second quarter, Petal Co. incurred an inventory loss, but the market price was expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. Petal accounts for its inventory using the LIFO method. When should the loss be reported in Petal's interim income statements? A. In the fourth quarter only. B. Ratably over the second, third, and fourth quarters. C. Ratably over the third and fourth quarters. D. In the second quarter only.

A. In the fourth quarter only.

Giaconda, Inc., acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach? A. Income. B. Cost. C. Observable inputs. D. Market.

A. Income.

AU-C 402, Audit Considerations Relating to an Entity Using a Service Organization, applies to a financial statement audit of an entity that uses services of another organization as part of its information system. For this purpose, the user auditor may need to obtain a service auditor's report. Which of the following is a true statement about a service auditor's report? A. It should include an opinion. B. A user auditor need not be concerned about the service auditor's professional competence. C. If it proves to be inappropriate for the user auditor's purposes, (s)he must personally perform procedures at the service organization. D. It provides the user auditor with assurance regarding whether control procedures have been implemented at the user organization.

A. It should include an opinion.

Inventory accounted for under which of the following cost flow methods is not measured at the lower of cost or net realizable value? A. Last-in, first-out (LIFO). B. Specific identification. C. Moving average. D. First-in, first-out (FIFO).

A. Last-in, first-out (LIFO).

Assuming no beginning work-in-process (BWIP) inventory, and that the ending work-in-process (EWIP) inventory is 50% complete as to conversion costs, the number of equivalent units as to conversion costs would be A. Less than the units placed in process. B. The same as the units placed in process. C. The same as the units completed. D. Less than the units completed.

A. Less than the units placed in process.

In an activity-based costing system, what should be used to assign a department's manufacturing overhead costs to products produced in varying lot sizes? A. Multiple cause-and-effect relationships. B. Relative net sales values of the products. C. A single cause-and-effect relationship. D. A product's ability to bear cost allocations.

A. Multiple cause-and-effect relationships.

Which of the following pairs of accounts would an auditor most likely analyze on the same working paper? A. Notes receivable and interest income. B. Interest income and interest expense. C. Accrued interest receivable and accrued interest payable. D. Notes payable and notes receivable.

A. Notes receivable and interest income.

The lessee should recognize amounts probable of being owed under a residual value guarantee as a component of lease payments A. On the commencement date of the lease. B. At the conclusion of the lease. C. On a straight-line basis during the lease. D. At no time during the lease term. PreviousNext

A. On the commencement date of the lease.

According to the AICPA Code of Professional Conduct, which of the following actions will impair independence? A. Participating in the hiring or termination of a client's employees. B. Processing payroll for a client's signature based on client recordkeeping. C. Assisting a client in drafting a stock-offering document or memorandum. D. Preparing client financial statements based on information in a trial balance.

A. Participating in the hiring or termination of a client's employees.

An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to A. Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation. B. Detect kiting activities that may otherwise not be discovered. C. Provide the data necessary to prepare a proof of cash. D. Request that a cutoff bank statement and related checks be sent to the auditor.

A. Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.

When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent A. Substitution. B. Deposits in transit. C. Irregular endorsement. D. Theft.

A. Substitution.

According to the AICPA Code of Professional Conduct, in which of the following circumstances may a CPA serve on a company's board of directors? A. The CPA does not audit the company and has no other business connection with the company. B. The CPA performs attestation services for a nonpublic company. C. The CPA is asked by the company to test the internal controls of the company and is offered compensation for said services. D. The CPA audits a bank to which the company has applied for financing, and board approval is required for said financing to occur.

A. The CPA does not audit the company and has no other business connection with the company.

Which of the following circumstances would not be considered a departure from the auditor's unmodified report? A. The auditor is asked to report only on the balance sheet, and the auditor can comply with relevant standards. B. The financial statements are affected by a departure from a generally accepted accounting principle. C. The auditor wishes to emphasize a particular matter regarding the financial statements. D. The auditor's opinion is based in part on the report of another auditor.

A. The auditor is asked to report only on the balance sheet, and the auditor can comply with relevant standards.

The AICPA Code of Professional Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability A. To maintain an impartial attitude on all matters that come under the CPA's review. B. To independently distinguish between accounting practices that are acceptable and those that are not. C. To independently choose between alternate accounting principles and auditing standards. D. To be unyielding in all matters dealing with auditing procedures. Previous

A. To maintain an impartial attitude on all matters that come under the CPA's review.

Maddie and Roxie each own 50% stock in POX, an S corporation. Maddie will assume Roxie's responsibilities while Roxie takes an extended leave in exchange for 35% of Roxie's stock ownership, valued at $55,000. Maddie's services are valued at $40,000. What is the treatment and recognized gain for Maddie on the transfer? A. Treatment Gross income Recognized Gain $55,000 B. Treatment Section 351 transfer Recognized Gain $0 C. Treatment Gain recognized Recognized Gain $15,000 D. Treatment Boot received Recognized Gain $40,000

A. Treatment Gross income Recognized Gain $55,000

Mason Co. uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200% of direct-labor dollars. This rate was calculated last year and will be used throughout the current year. Mason had one job, No. 150, in process at the beginning of the month with raw materials costs of $2,000 and direct-labor costs of $3,000. During the month, raw materials and direct labor added to jobs were as follows: No. 150 No. 151 No. 152 Raw materials $ -- $4,000 $1,000 Direct labor 1,500 5,000 2,500 Actual manufacturing overhead for the month was $20,000. During the month, Mason completed Job Nos. 150 and 151. For the month, manufacturing overhead was A. Underapplied by $2,000. B. Underapplied by $7,000. C. Underapplied by $1,000. D. Overapplied by $4,000.

A. Underapplied by $2,000.

Among the items reported on Cord, Inc.'s income statement for the year ended December 31 were the following: Compensation expense for a stock option plan $50,000 Insurance premium on the life of an officer (Cord is the owner and beneficiary.) 25,000 Neither is deductible for tax purposes. Temporary differences amount to A. $75,000 B. $0 C. $50,000 D. $25,000

B. $0

A corporation issued debt to purchase 10 acres of land for development purposes. Expenditures related to this purchase are as follows:Description AmountPurchase price $1,000,000Real estate taxes in arrears 15,000Debt issuance costs 2,000Attorney fee -- title search on land 5,000The company should record its acquisition of the land in its financial statements at a value of A. $1,000,000 B. $1,020,000 C. $1,015,000 D. $1,022,000

B. $1,020,000

Mr. Brown transferred property, which had an adjusted basis to him of $40,000 and a fair market value of $50,000, to Corporation B in exchange for 100% of B's only class of stock and $15,000 cash. At the time of the transfer, the stock had a fair market value of $35,000. What is the amount of gain to be recognized by Mr. Brown? A. $15,000 B. $10,000 C. $0 D. $25,000

B. $10,000

The Hastings Company began operations on January 1, Year 1, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory Year 1 Year 2 FIFO $240,000 $270,000 LIFO 200,000 210,000 Net income per FIFO $120,000 $170,000 Based upon the above information, a change to the LIFO method in Year 2 results in net income for Year 2 of A. $170,000 B. $150,000 C. $110,000 D. $230,000

B. $150,000

Woods Company has entered into a contract to lease computers from Savage Company starting on January 1, Year 1. Relevant information pertaining to the lease is provided below. Lease term 4 Years Useful life of computers 5 Years Present value of future lease payments $100,000 Fair value of leased asset on date of lease 105,000 Savage's implicit rate (known to Woods) 10% At the end of the lease term, ownership of the asset transfers from Savage to Woods.What is the annual amortization expense that Woods will record on the right-of-use asset? A. $21,000 B. $20,000 C. $25,000 D. $26,250

B. $20,000

Invest, Inc., is an S corporation that is liable for the special tax on its excess net passive income (ENPI) for the current tax year. Invest, Inc., has $100,000 of ENPI for the current tax year. What is the amount of the tax? A. $15,000 B. $21,000 C. $35,000 D. $37,000

B. $21,000

Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.Direct materials $ 1,000Materials handling (20% of direct materials cost) 200Direct labor 8,000Manufacturing overhead (150% of direct labor) 12,000Total manufacturing cost $21,200Materials handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000.Assume that Leland Manufacturing does not wish to commit to a rental agreement but could use idle capacity to manufacture another product that would contribute $52,000 per month. If Leland elects to manufacture KJ37 in order to maintain quality control, Leland's opportunity cost is A. $18,000 B. $4,000 C. Some amount other than those given. D. $(20,000)

B. $4,000

In Year 1, Cobb adopted the dollar-value LIFO inventory method. At that time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In Year 2, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, Year 2, balance sheet? A. $400,000 B. $410,000 C. $440,000 D. $430,000

B. $410,000

In a Sec. 351 transaction, Mr. Biller transferred assets with an adjusted basis of $76,000 and a fair market value of $80,000 to Bay View Corporation in exchange for its capital stock with a fair market value of $72,000. Bay View Corporation also assumed a liability from Mr. Biller of $81,000 [not a trade account payable under Sec. 357(c)(3)]. What is Mr. Biller's recognized gain? A. $8,000 B. $5,000 C. $9,000 D. $1,000

B. $5,000

On December 28, Kerr Manufacturing Co. purchased goods costing $50,000. The terms were FOB destination. Some of the costs incurred in connection with the sale and delivery of the goods were as follows: Packaging for shipment $1,000 Shipping 1,500 Special handling charges 2,000 These goods were received on December 31. In Kerr's December 31 balance sheet, what amount of cost for these goods should be included in inventory? A. $53,500 B. $50,000 C. $54,500 D. $52,000

B. $50,000

Data regarding Jack Company's budget follow: Budgeted sales 5,000 units Materials cost $6.50 per pound Direct labor 2 hours per unit Direct labor rate $7 per hour Finished goods beginning inventory 1,500 units Finished goods ending inventory 1,000 units Direct materials beginning inventory 5,300 units Direct materials ending inventory 5,500 units Materials used per unit 6 pounds According to the production budget, total direct labor cost is A. $58,500 B. $63,000 C. $77,000 D. $70,000

B. $63,000

The following information concerns Montero Corp. Purchases Sales January $42,000 $72,000 February 48,000 66,000 March 36,000 60,000 April 54,000 78,000 Collections from Montero Corp.'s customers are normally 70% in the month of sale, and 20% and 9%, respectively, in the 2 months following the sale. The balance is uncollectible. Montero takes full advantage of the 2% discount allowed on purchases paid for by the 10th of the following month. Purchases for May are budgeted at $60,000, and sales for May are forecasted at $66,000. Cash disbursements for expenses are expected to be $14,400 for the month of May. Montero's cash balance at May 1 was $22,000.What are Montero's expected cash disbursements for May? A. $68,400 B. $67,320 C. $14,400 D. $52,920

B. $67,320

Frame Co. has an 8% note receivable dated June 30, Year 1, in the original amount of $150,000. Payments of $50,000 in principal plus accrued interest are due annually on July 1 for Year 2, Year 3, and Year 4. In its June 30, Year 3, balance sheet, what amount should Frame report as a current asset for interest on the note receivable? A. $12,000 B. $8,000 C. $4,000 D. $0

B. $8,000

Thorpe Co.'s income statement for the year ended December 31, Year 1, reported net income of $74,100. The auditor raised questions about the following amounts that had been included in net income: Unrealized holding loss on available-for- sale debt securities $(5,400) Gain on early retirement of bonds payable (net of $11,000 tax effect) 22,000 Adjustment to profits of prior years for errors in depreciation (net of $3,750 tax effect) (7,500) Loss from fire (net of $7,000 tax effect) (14,000) The loss from the fire was an infrequent but not unusual occurrence in Thorpe's line of business. Thorpe's December 31, Year 1, income statement should report net income of A. $66,100 B. $87,000 C. $81,600 D. $65,000

B. $87,000

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely will be included with the client's confirmation letter? A. An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct. B. A client-prepared statement of account showing the details of the customer's account balance. C. An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the client. D. A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent.

B. A client-prepared statement of account showing the details of the customer's account balance.

Banister, a CPA, is approached by Wagner, a client. Wagner requests that Banister return the records provided to Banister by Wagner during an audit. Wagner still owes Banister the fees associated with the audit. According to the AICPA Code of Professional Conduct, what should Banister do? A. Banister should return the records to Wagner only after the fee has been paid. B. Banister should return the records to Wagner. C. Banister should not return the records to Wagner without a court order. D. Banister should not return the records to Wagner because the records now belong to Banister.

B. Banister should return the records to Wagner.

When preparing a performance report for a cost center using flexible budgeting techniques, the planned cost column should be based on the A. Actual amount for the same period in the preceding year. B. Budget adjusted to the actual level of activity for the period being reported. C. Budgeted amount in the original budget prepared before the beginning of the year. D. Budget adjusted to the planned level of activity for the period being reported.

B. Budget adjusted to the actual level of activity for the period being reported.

How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement? A. By performing tests of controls at interim-and period-end dates. B. By assigning more experienced staff or those with specialized skills to high-risk areas. C. By performing analytical procedures, but not substantive procedures, at period end. D. By obtaining a management representation letter.

B. By assigning more experienced staff or those with specialized skills to high-risk areas.

Green Co. incurred leasehold improvement costs for its leased property. The estimated useful life of the improvements was 15 years. The remaining term of the nonrenewable lease was 20 years. These costs should be A. Expensed as incurred. B. Capitalized and depreciated over 15 years. C. Capitalized and depreciated over 20 years. D. Capitalized and expensed in the year in which the lease expires.

B. Capitalized and depreciated over 15 years.

Which of the following is a department overseen by the Treasurer in a cash sale environment? A. Accounts Receivable. B. Cash Receipts. C. General Ledger. D. Billing.

B. Cash Receipts.

On December 31, a company has the following bank accounts and corresponding cash balances: California Bank Operating -- Summit Ridge $(400,000) Operating -- Bakersville 300,000 Operating -- Smithville 50,000 Savings 500,000 Sedona Bank Checking $(375,000) How should the company report the above bank account balances in the balance sheet at December 31? A. Cash of $800,000 and a liability of $725,000. B. Cash of $450,000 and a liability of $375,000. C. Cash of $850,000 and a liability of $775,000. D. Cash of $75,000.

B. Cash of $450,000 and a liability of $375,000.

The permanent (continuing) file of an auditor's audit documentation most likely would include copies of the A. Lead schedules. B. Debt agreements. C. Attorney's letters. D. Bank statements.

B. Debt agreements.

Rent should be reported by the lessor as revenue over the lease term as it becomes receivable according to the provisions of the lease for a(n) A. Direct-Financing Lease Yes Operating Lease No Sales-Type Lease No B. Direct-Financing Lease No Operating Lease Yes Sales-Type Lease No C. Direct-Financing Lease No Operating Lease No Sales-Type Lease Yes D. Direct-Financing Lease Yes Operating Lease Yes Sales-Type Lease Yes

B. Direct-Financing Lease No Operating Lease Yes Sales-Type Lease No

Which of the following acts by a CPA who is in business most likely is a violation of the ethical standards of the profession? A. The member accepts a commission for selling a product. B. Failing to disclose material facts when the employer's external accountant has requested written representations. C. Compiling the CPA's employer's financial statements and referring to the CPA's lack of independence. D. The member sells a newsletter bearing his or her name. PreviousNext

B. Failing to disclose material facts when the employer's external accountant has requested written representations.

A company terminated its S corporation status for the current tax year. When can the company reelect S status? A. Immediately. B. Fifth year from the current tax year. C. Cannot reelect in future. D. Third year from the current tax year.

B. Fifth year from the current tax year.

An auditor of the financial statements of an issuer has included an emphasis paragraph in the auditor's report. In accordance with PCAOB auditing standards, an emphasis paragraph A. Substitutes for the critical audit matters section. B. Is never required. C. Requires the addition of "with the foregoing explanation" in the Basis for Opinion section. D. Must have the section title "Emphasis of a Matter."

B. Is never required.

Hart Company's lease payments are made at the end of each period. Hart's liability for a finance lease will be reduced periodically by the A. Lease payment less the amortization of the related asset. B. Lease payment less the portion of the lease payment allocable to interest. C. Lease payment. D. Lease payment plus the amortization of the related asset.

B. Lease payment less the portion of the lease payment allocable to interest.

The costs of organizing a corporation in 2022 A. May be deducted only in the year in which these costs are paid. B. May be amortized over a period of 180 months, even if these costs are capitalized on the company's books. C. May be deducted in full in the year in which these costs are incurred even if paid in later years. D. Are nondeductible capital expenditures.

B. May be amortized over a period of 180 months, even if these costs are capitalized on the company's books.

Under the three-variance method for analyzing manufacturing overhead, the difference between the actual manufacturing overhead and the manufacturing overhead applied to production is the A. Spending variance. B. Net manufacturing overhead variance. C. Efficiency variance D. .Controllable variance.

B. Net manufacturing overhead variance.

The AICPA's Code of Professional Conduct includes a Form of Organization and Name Rule. It states that a member may practice public accounting only in a form or organization allowed by law or regulation that conforms with resolutions of the AICPA Council. Assume that a CPA firm is part of an alternative practice structure (APS) in which the firm is a subsidiary of another entity. Which attribute prevents a member of the AICPA from practicing public accounting in the APS? A. The parent performs back-office functions for the firm. B. Non-CPAs own a majority of the firm's financial interests. C. The parent leases employees to the firm. D. Substantially all revenues of the firm are paid to another entity.

B. Non-CPAs own a majority of the firm's financial interests.

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? A. Vouch a sample of cash receipts and disbursements for the last few days of the current year. B. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts. C. Confirm the amounts included in the statement of cash flows with the entity's financial institution. D. Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance.

B. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.

Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information? A. Responding to an enforceable subpoena. B. Releasing financial information to a local bank with the approval of the client's mail clerk. C. Faxing a tax return to a loan officer at the request of the client. D. Allowing a review of a professional practice without client authorization.

B. Releasing financial information to a local bank with the approval of the client's mail clerk.

The AICPA Code of Professional Conduct does not include enforceable Rules of Conduct on which of the following? A. Accounting principles. B. Responsibilities to colleagues. C. Independence and integrity and objectivity. D. Professional competence and due professional care.

B. Responsibilities to colleagues.

A shareholder's basis in the stock of an S corporation is increased by the shareholder's pro rata share of income from A. Tax-Exempt Interest No Taxable Interest No B. Tax-Exempt Interest Yes Taxable Interest Yes C. Tax-Exempt Interest No Taxable Interest Yes D. Tax-Exempt Interest Yes Taxable Interest No

B. Tax-Exempt Interest Yes Taxable Interest Yes

In Year 4, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently inflicted similar damage to Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying for repairs or selling damaged vans and then replacing them. In Year 4, the damaged vans were sold for less than their carrying amount. How should the hail damage cost be reported in Toncan's Year 4 financial statements? A. The expected average hail damage loss in continuing operations, with no separate disclosure. B. The actual Year 4 hail damage loss in continuing operations, with no separate disclosure. C. The expected average hail damage loss in continuing operations, with separate disclosure. D. The actual Year 4 hail damage loss as a discontinued operation, net of income taxes.

B. The actual Year 4 hail damage loss in continuing operations, with no separate disclosure.

Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate? A. The chief financial officer and the chief executive officer are unwilling to sign the management representation letter. B. The company issues financial statements that purport to present financial position and results of operations but refuses to include the related statement of cash flows. C. The auditor is unable to determine the extent of or the amounts associated with a pervasive employee fraud scheme. D. Management refuses to produce documentation verifying the ownership of its equipment and production facilities.

B. The company issues financial statements that purport to present financial position and results of operations but refuses to include the related statement of cash flows.

Which of the following factors most likely would heighten an auditor's concern about the risk of material misstatement arising from the misappropriation of assets? A. Management recently adopted new accounting principles. B. The entity's fixed assets lack ownership identification. C. The entity recently experienced rapid growth in revenue. D. There is a potential for bias in the preparation of accounting estimates.

B. The entity's fixed assets lack ownership identification.

The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for good output equal this predetermined activity level for a given period, the volume variance will be A. Unfavorable. B. Zero. C. Favorable. D. Either favorable or unfavorable, depending on the budgeted overhead.

B. Zero.

The following Year 1 annual report was received by Clark from the qualified-defined contribution plan provided by Clark's employer: Beginning balance $12,700 Employer contribution 600 Plan earnings 250 Ending balance $13,550 What income must be included in Clark's gross income for Year 1? A. $600 B. $250 C. $0 D. $850

C. $0

Mary is the sole shareholder of Company A, Inc., an S corporation, as well as a 50% shareholder in Company B, Inc., also an S corporation. During the 2022 tax year, both companies acquired qualified assets in order to take the Sec. 179 election for the full allowable amount. Prior to the 2022 tax year, the companies had accumulated Sec. 179 deductions in the following amounts: Company A - $1,436,700 Company B - $1,383,300 Calculate the maximum amount of Sec. 179 deduction Mary will be able to recognize on her personal income tax returns for the 2022 tax year. A. Nothing, because accumulated Sec. 179 deductions previously taken exceed the combined cumulative amount allowable of $2,700,000. B. $2,100,000 C. $1,080,000 D. $1,050,000

C. $1,080,000

Felicity Corporation manufactures a specialty line of dresses using a job-order cost system. During January, the following costs were incurred in completing job J-1: Direct materials $27,400 Direct labor 9,600 Administrative costs 2,800 Selling costs 11,200 Overhead was applied at the rate of $50 per direct labor hour, and job J-1 required 400 direct labor hours. If job J-1 resulted in 4,000 good dresses, the cost of goods sold per unit is A. $17.75 B. $9.25 C. $14.25 D. $14.95

C. $14.25

On January 1, Year 4, Card Corp. signed a 3-year, noncancelable purchase contract that allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. The price is $.10 per unit, and the contract guarantees a minimum annual purchase of 100,000 units. During Year 4, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, Year 4, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its Year 4 income statement? A. $8,000 B. $24,000 C. $16,000 D. $20,000

C. $16,000

On April 1, Ash Corp. began offering a new product for sale under a 1-year assurance-type warranty. Of the 5,000 units in inventory at April 1, 3,000 had been sold by June 30. Based on its experience with similar products, Ash estimated that the average warranty cost per unit sold would be $8. Actual warranty costs incurred from April 1 through June 30 were $7,000. At June 30, what amount should Ash report as estimated warranty liability? A. $9,000 B. $33,000 C. $17,000 D. $16,000

C. $17,000

On March 1, Year 3, Fine Co. borrowed $10,000 and signed a 2-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, Year 5. What amount should Fine report as a liability for accrued interest at December 31, Year 4? A. $1,200 B. $1,000 C. $2,320 D. $0

C. $2,320

Wiggins is the sole shareholder of the Tamale Corporation, a calendar-year S corporation. Tamale is indebted to Wiggins in the amount of $5,000. For the current year, Tamale earned $25,000 of ordinary income and distributed $10,000 as a dividend to Wiggins. How much income should Wiggins report from Tamale Corporation for the current year? A. $0 B. $10,000 C. $25,000 D. $35,000

C. $25,000

At the end of Year 1, Boller Co. had an ending balance in allowance for credit losses of $30,000. During Year 2, Boller wrote off $40,000 of accounts receivable. At the end of Year 2, Boller had $300,000 in accounts receivable and determined that 8% of these would be uncollectible. What amount should be reported as credit loss expense on Boller's Year 2 income statement? A. $24,000 B. $14,000 C. $34,000 D. $64,000

C. $34,000

Birk Co. uses a job-order cost system. The following debits (credit) appeared in Birk's work-in-process account for the month just ended: Day Description Amount 1 Balance $ 4,000 30 Direct materials 24,000 30 Direct labor 16,000 30 Factory overhead 12,800 30 To finished goods (48,000) Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process at month end, has been charged with direct labor of $2,000. What was the amount of direct materials charged to Job No. 5? A. $8,800 B. $3,000 C. $5,200 D. $24,000

C. $5,200

Samantha Corporation filed its 2022 Form 1120-S on September 30, 2023. Samantha is a calendar-year taxpayer with 5 shareholders. What amount will Samantha owe for failure to file on time? A. $1,320 B. $1,540 C. $7,700 D. $6,600

C. $7,700

Mien Co. is budgeting sales of 53,000 units of product Nous for next month. The manufacture of one unit of Nous requires 4 kilos of chemical Loire. During the month, Mien plans to reduce the inventory of Loire by 50,000 kilos and increase the finished goods inventory of Nous by 6,000 units. There is no Nous work-in-process inventory. How many kilos of Loire is Mien budgeting to purchase next month? A. 138,000 B. 238,000 C. 186,000 D. 162,000

C. 186,000

Kerner Manufacturing uses a process cost system to manufacture laptop computers. The following information summarizes operations relating to laptop computer model #KJK20 during the quarter ending March 31: Units Direct Materials WIP inventory, January 1 100 $70,000 Started during the quarter 500 Completed during the quarter 400 WIP inventory, March 31 200 Costs added during the quarter $750,000 Beginning work-in-process inventory was 50% complete for direct materials. Ending work-in-process inventory was 75% complete for direct materials. Using the FIFO method, what were the equivalent units of production with regard to materials for the quarter ended March 31? A. 550 B. 450 C. 500 D. 600

C. 500

A member of the AICPA may render which service under a contingent fee arrangement? A. A CPA examines prospective financial statements for a client who intends to sell limited partnerships, with the CPA's fee contingent upon the proceeds. B. A CPA audits the financial statements of a company that intends to issue securities for sale to the public, with the fee contingent upon the proceeds from the sale of the securities. C. A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio. D. A CPA compiles financial statements for a client seeking a loan, with the fee contingent upon the amount the client is able to borrow. The report does not disclose lack of independence.

C. A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio.

A flowchart of a client's revenue cycle appears below. Symbol A most likely represents A. Receiving report file. B. Cash disbursements transaction file. C. Accounts receivable master file. D. Remittance advice file.

C. Accounts receivable master file.

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management's assertion of A. Completeness. B. Existence. C. Accuracy, valuation, and allocation. D. Cutoff.

C. Accuracy, valuation, and allocation.

Which of the following cost methods is least likely to result in cost shifting in a multiproduct manufacturing environment? A. Process costing. B. Traditional costing. C. Activity-based costing. D. Straight-line costing.

C. Activity-based costing.

To which of the following parties may a CPA partnership provide its audit documentation, without being lawfully subpoenaed or without the client's consent? A. The FASB. B. The IRS. C. Any surviving partner(s) on the death of a partner. D. A CPA before purchasing a partnership interest in the firm.

C. Any surviving partner(s) on the death of a partner.

The tax on built-in gains is a corporate-level tax on S corporations that dispose of assets that A. Appreciated during a 10-year period from when an S election is effective. B. Appreciated while the company was an S corporation. C. Appreciated while the company was a C corporation. D. Appreciated within 12 months of electing S corporation status.

C. Appreciated while the company was a C corporation.

An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning relevant assertions about A. Completeness. B. Existence. C. Classification. D. Accuracy, valuation, and allocation.

C. Classification.

In the consolidated financial statements of a parent and its 90%-owned subsidiary, A. Consolidated equity is the amount attributable to the parent. B. Revenues and expenses are reported at the separate amounts attributable to the parent and the noncontrolling interest. C. Comprehensive income or loss attributable to the parent and the noncontrolling interest is reported at separate amounts. D. Consolidated net income or loss is the amount attributable to the parent.

C. Comprehensive income or loss attributable to the parent and the noncontrolling interest is reported at separate amounts.

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to report on CSC's description of the controls implemented and their design as of a specific date. These controls are relevant to the schools' internal control, so Drake's report will be useful in providing the schools' independent auditors with information necessary to plan their audits. Drake's report expressing an opinion on CSC's controls implemented as of a specific date should contain a(n) A. Opinion on the operating effectiveness of CSC's controls. B. Paragraph indicating the basis for Drake's assessment of the risks of material misstatement. C. Description of the scope and nature of Drake's procedures. D. Statement that CSC's management has disclosed to Drake all design deficiencies of which it is aware.

C. Description of the scope and nature of Drake's procedures.

A CPA audits the financial statements of a local bank. According to the AICPA Code of Professional Conduct, the appearance of independence ordinarily would not be impaired if the CPA A. Serves on the bank's committee that approves loans. B. Owns several shares of the bank's common stock. C. Designs an information system for the bank that is unrelated to its accounting records. D. Obtains a home mortgage from the bank.

C. Designs an information system for the bank that is unrelated to its accounting records.

Which of the following costs includes all the product costs? A. Manufacturing overhead and conversion costs. B. Direct labor and conversion costs. C. Direct material and conversion costs. D. Direct labor and prime costs.

C. Direct material and conversion costs.

Which of the following explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account? A. An appropriation for possible loss on retirement has been recorded. B. An asset has been recorded at its fair value. C. Extraordinary repairs have lengthened the life of an asset. D. Prior years' depreciation charges were erroneously understated.

C. Extraordinary repairs have lengthened the life of an asset.

In verifying the amount of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the A. Seller's carrying amounts as evidenced by financial statements. B. Assessed values as evidenced by tax bills. C. Fair values as evidenced by independent appraisals. D. Insured values as evidenced by insurance policies.

C. Fair values as evidenced by independent appraisals.

According to the FASB's conceptual framework, neutrality relates to A. Faithful Representation No Relevance No B. Faithful Representation No Relevance Yes C. Faithful Representation Yes Relevance No D. Faithful Representation Yes Relevance Yes

C. Faithful Representation Yes Relevance No

Yak Company, an S corporation, had $128,000 in losses in Year 3. On January 1, Year 3, Yak Company was owned by Felicia (40%), Fauna (35%), and Farrah (25%). Felicia sold 50% of her shares to Frank on April 1 and her remaining shares to Felix on August 1. Fauna and Farrah owned their shares in Yak Company for the entire year. Which shareholder recognizes the greatest loss for Year 3 (a non-leap year)? A. Farrah. B. Frank. C. Fauna. D. Felicia.

C. Fauna.

Activity-based costing (ABC) is a term used to describe allocation methods that are based on cause and effect (i.e., charging costs to whatever causes them). Why is this more important to project managers using job-order costing than those using process costing? A. If a project manager is charged for costs used, such as equipment rental, resources tend to sit idle in case they are needed. B. Process costing is no longer used. C. Job-order costing is used if the products or services sold are different enough to justify the additional cost involved in tracing costs to their cause. Charging all products or services a flat amount per unit shifts costs from those that cause them to those that do not. D. If project managers are charged an in-house rate for resources that exceeds the rate charged by an external supplier, they will not use company resources that sit idle. Total costs then decrease.

C. Job-order costing is used if the products or services sold are different enough to justify the additional cost involved in tracing costs to their cause. Charging all products or services a flat amount per unit shifts costs from those that cause them to those that do not.

Which of the following matters will an auditor most likely include in a management representation letter? A. All concentrations of credit risk not expected to change materially within the next year. B. Plans to acquire or merge with other entities in the subsequent year. C. Management's acknowledgment of its responsibility to detect employee fraud. D. Communications with the audit committee concerning weaknesses in internal control.

C. Management's acknowledgment of its responsibility to detect employee fraud.

Which factor does not serve to determine whether an S corporation may be subject to the tax on excess net passive income? A. The S corporation has Subchapter C earnings and profits at the end of the year. B. The S corporation has been an S corporation from the date of its incorporation. C. More than 50% of loans payable are not at risk. D. Passive investment income is more than 25% of its gross receipts.

C. More than 50% of loans payable are not at risk.

Compared with static budgets, flexible budgets A. Offer managers a more realistic comparison of budget and actual fixed cost items under their control. B. Encourage managers to use fewer fixed cost items and more variable cost items that are under their control. C. Offer managers a more realistic comparison of budget and actual revenue and cost items under their control. D. Provide a better understanding of the capacity variances during the period being evaluated.

C. Offer managers a more realistic comparison of budget and actual revenue and cost items under their control.

Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct? A. Paul Fall Certified Public Accountant Fluency in Spanish and French B. Paul Fall Certified Public Accountant Free Consultation C. Paul Fall Certified Public Accountant Endorsed by AICPA D. Paul Fall Certified Public Accountant J.D., Evans Law School 1984

C. Paul Fall Certified Public Accountant Endorsed by AICPA

Which of the following is prohibited by the AICPA Code of Professional Conduct? A. Use of the partnership name for a limited period by one of the partners in a public accounting firm after the death or withdrawal of all other partners. B. Practice of public accounting in the form of a professional corporation that uses a firm name indicating specialization. C. Prematurely expressing an opinion based on an audit because of time pressures from the client. D. Failing to provide working papers to the client after a request has been made.

C. Prematurely expressing an opinion based on an audit because of time pressures from the client.

An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of A. Accuracy, valuation, and allocation. B. Existence. C. Presentation. D. Accuracy.

C. Presentation.

Which of the following does not result in recognition of a deferred tax asset? A. Subscriptions revenue received in advance. B. Immediate expensing of organizational costs. C. Receipt of municipal bond interest. D. An operating loss carryforward.

C. Receipt of municipal bond interest.

Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee? A. Performance of consulting services for an audit client. B. Preparation of an original income tax return. C. Representation of a nonattest client in an IRS examination. D. Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return.

C. Representation of a nonattest client in an IRS examination.

In obtaining an understanding of internal control in a financial statement audit, an auditor is not obligated to A. Determine whether the controls have been implemented. B. Perform procedures to understand the design of internal control. C. Search for significant deficiencies in the operation of internal control. D. Document the understanding of the entity's internal control components.

C. Search for significant deficiencies in the operation of internal control.

In which of the following circumstances would a CPA who audits XM Corporation lack independence? A. The CPA has an automobile loan from XM, a financial institution. The loan is collateralized by the automobile. B. The CPA is a director of, but does not control, YN Corporation, which has a loan from XM. C. The CPA and XM's president each owns 25% of FOB Corporation, a closely held company. D. The CPA reduced XM's usual audit fee by 40% prior to the audit because XM's financial condition was unfavorable.

C. The CPA and XM's president each owns 25% of FOB Corporation, a closely held company.

Management discovers that a supervisor at one of its restaurant locations removes excess cash and resets sales totals throughout the day on the point-of-sale (POS) system. At closing, the supervisor deposits cash equal to the recorded sales on the POS system and keeps the rest. The supervisor forwards the close-of-day POS reports from the POS system along with a copy of the bank deposit slip to the company's revenue accounting department. The revenue accounting department records the sales and the cash for the location in the general ledger and verifies the deposit slip to the bank statement. Any differences between sales and deposits are recorded in an over/short account and, if necessary, followed up with the location supervisor. The customer food order checks are serially numbered, and it is the supervisor's responsibility to see that they are accounted for at the end of each day. Customer checks and the transaction journal tapes from the POS system are kept by the supervisor for 1 week at the location and then destroyed.Which of the following controls allowed the fraud to occur? A. The forwarding of the close-of-day POS reports to revenue accounting. B.The matching of the bank deposit slips to the bank statement by revenue accounting. C. The accounting for customer food checks by the supervisor. D. The deposit of cash receipts by the supervisor.

C. The accounting for customer food checks by the supervisor.

Subsequent to the issuance of the audit report for the final year of a 3-year contract, a fact is discovered that may have affected the final year's report. Which of the following actions is the auditor required to take? A. The auditor is required to reissue the auditor's report and to reference discovery of the fact. B. The auditor is not required to do anything because once the auditor has reported on audited financial statements, the auditor has no responsibility to carry out any retrospective review of the workpapers or show the effect of any newly discovered facts on them. C. The auditor is required to determine whether the information is reliable and whether the facts existed at the date of the report. D. The auditor is not required to do anything because the auditor was discharged for reasons other than professional misconduct after the audited financial statements were issued.

C. The auditor is required to determine whether the information is reliable and whether the facts existed at the date of the report.

Regarding employment or association with attest clients, the employment of a former partner by a client in a key position most likely impairs firm independence if A. Team members have interactions with the former partner. B. The former partner cannot influence the accounting firm's operations. C. The former partner consults with the accounting firm. D. Amounts are to be paid to the former partner based on a fixed formula.

C. The former partner consults with the accounting firm.

A member of the AICPA owns an interest in a separate business that performs tax services. If the member does not control the business, who must comply with the Code of Professional Conduct? A. The other owners. B. The entity's employees. C. The member only. D. The entity and the member.

C. The member only.

In which of the following circumstances would a covered member's independence be impaired with respect to a nonissuer client? A. The member's spouse qualifies because of geographical residence to belong to a client's credit union, and all transactions with the credit union are conducted under normal operating practices. B. The member is designated to serve as guardian of a friend's children if the need arises, and the friend's estate, which would be held in trust for the children, holds significant stock ownership in a client entity. C. The member owns municipal utility bonds issued by a client, and the bonds are not material to the member's wealth. D. The member belongs to a client golf club that requires members to acquire a share of the club's debt securities.

C. The member owns municipal utility bonds issued by a client, and the bonds are not material to the member's wealth.

A CPA is gaining an understanding of the internal controls for a client that sells garden products using an Internet site. Which of the following is not likely to be found on the client's organization chart? A. The shipping department. B. The warehouse. C. The sales order department. D. Computer processing.

C. The sales order department.

The following information pertains to Roe Co.'s manufacturing operations for the month just ended: Standard direct labor hours per unit 2 Actual direct labor hours 10,500 Number of units produced 5,000 Standard variable overhead per standard direct labor hour $3 Actual variable overhead $28,000 Roe's unfavorable variable overhead efficiency variance was A. $2,000 B. $0 C. $3,500 D. $1,500

D. $1,500

On December 21, Year 1, the board of directors of Evans Corporation approved a plan to award 600,000 share options to 20 key employees as additional compensation. Effective January 1, Year 2, each employee was granted the right to purchase 30,000 shares of the company's $2 par-value stock at an exercise price of $36 per share. The market price on that date was $32 per share. All share options vest at December 31, Year 4, the end of the 3-year requisite service period. They expire on December 31, Year 11. Based on an appropriate option-pricing formula, the fair value of the options on the grant date was estimated at $12 per option.What amount of compensation expense should Evans Corporation recognize in its annual income statement for the year ended December 31, Year 2? A. $7,200,000 B. $1,200,700 C. $6,400,000 D. $2,400,000

D. $2,400,000

XYZ Corporation (an S corporation) had the following items of income and deductions for 2022. Charles and Diane are equal shareholders in the corporation. They each had an adjusted stock basis of $30,000 on January 1, 2022. Gross receipts from sales $100,000 Cost of goods sold 50,000 Depreciation 10,000 Charitable contributions 10,000 Interest income 5,000 Tax-exempt interest 3,000 Other operating costs 63,000 Diane received a distribution of $15,000 on June 1, 2022. Her basis on January 1, 2023, is A. $15,000 B. $0 C. $3,500 D. $2,500

D. $2,500

Sanders Corporation purchased a $1 million 10-year debenture for $1.2 million on January 1, 2015. In 2022, how much amortization of bond premium must Sanders report on its 2022 income tax return from purchase of this bond? A. $200,000 B. $240,000 C. $0 D. $20,000

D. $20,000

For the current year, Sandit Corporation had gross income from operations of $500,000 and operating expenses of $700,000. Additionally, Sandit had $50,000 in charitable contributions and a net operating loss (NOL) of $80,000 carried forward from last year. What is the current NOL for Sandit Corporation? A. $280,000 B. $330,000 C. $250,000 D. $200,000

D. $200,000

Star Corp. had the following accounts and balances in its general ledger as of December 31: Petty cash $ 500 XYZ Bank -- checking account 20,000 Marketable equity security 10,000 Marketable debt security 7,500 ABC Bank -- depository account 5,000 What amount should Star report as cash and cash equivalents in the balance sheet as of December 31? A. $35,000 B. $25,000 C. $42,500 D. $25,500

D. $25,500

Justin Peter earned a salary of $30,000 during 2022. During the year, he was required by his employer to take several overnight business trips, and he received an expense allowance of $1,500 for travel and lodging. In the course of these trips, he incurred the following expenses which were either adjustments to income or deductions from adjusted gross income. Travel $1,100 Lodging 500 Entertainment of customers 400 What is Justin's adjusted gross income if he does not account to his employer for the expenses? A. $29,900 B. $30,000 C. $29,500 D. $31,500

D. $31,500

The following were among Gage Co.'s costs during the month just ended: Normal spoilage $ 5,000 Freight out 10,000 Excess of actual manufacturing costs over standard costs 20,000 Standard manufacturing costs 100,000 Actual prime manufacturing costs 80,000 Gage's actual manufacturing overhead was A. $120,000 B. $55,000 C. $45,000 D. $40,000

D. $40,000

On December 1, Boyd Co. purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it salvaged from the demolition. Boyd incurred additional costs and realized salvage proceeds during December as follows: Cost to raze old building $50,000 Legal fees for purchase contract and to record ownership 10,000 Title guarantee insurance 12,000 Proceeds from sale of salvaged materials 8,000 In its December 31 balance sheet, Boyd should report a balance in the land account of A. $422,000 B. $442,000 C. $460,000 D. $464,000

D. $464,000

Beck Corp. has been a calendar-year S corporation since its inception on January 2, 2017. On January 1, 2022, Lazur and Lyle each owned 50% of the Beck stock in which their respective tax bases were $12,000 and $9,000. For the year ended December 31, 2022, Beck had $81,000 in ordinary business income and $10,000 in tax-exempt income. Beck made a $51,000 cash distribution to each shareholder on December 31, 2022. What was Lazur's tax basis in Beck after the distribution? A. $52,500 B. $57,500 C. $1,500 D. $6,500

D. $6,500

During 2022, Sweetheart Corporation had the following income and expenses: Gross receipts $1,200,000 Salaries and wages 600,000 Contribution to qualified charities 90,000 Capital gains 30,000 Depreciation expense 70,000 Dividend income from a 20%-owned domestic corporation 120,000 Dividends-received deduction 78,000 What is the amount of Sweetheart's charitable contribution deduction for 2022? A. $59,000 B. $51,200 C. $90,000 D. $68,000

D. $68,000

The following amounts pertain to Arp Co.'s manufacturing operations for March: Inventories 3/1 3/31 Direct materials $18,000 $15,000 Work-in-process 9,000 6,000 Finished goods 27,000 36,000 Additional information for the month of March: Direct materials purchased $42,000 Direct labor payroll 30,000 Direct labor rate per hour 7.50 Factory overhead rate per direct labor hour 10.00 For the month of March, Arp's prime costs were A. $45,000 B. $39,000 C. $69,000 D. $75,000

D. $75,000

Zinco Corp. was a calendar-year S corporation. Zinco's S status terminated on April 1, 2022, when Case Corp. became a shareholder. During 2022 (365-day calendar year), Zinco had nonseparately computed income of $310,250. If no election was made by Zinco, what amount of the income, if any, was allocated to the S corporation short year for 2022? A. $233,750 B. $155,125 C. $0 D. $76,500

D. $76,500

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows: Direct materials $ 2,000 Materials handling (20% of direct materials cost) 400 Direct labor 16,000 Manufacturing overhead (150% of direct labor) 24,000 Total manufacturing cost $42,400 Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is A. $(96,000) B. $68,000 C. $88,000 D. $8,000

D. $8,000

The data below pertain to two types of products manufactured by Cobb Corp. Fixed costs total $300,000 annually. The expected mix in units is 60% for product Y and 40% for product Z. Per Unit Sales Price Variable Costs Product Y $120 $70 Product Z 500 200 How much is Cobb's breakeven point in units? A. 2,459 B. 857 C. 1,111 D. 2,000

D. 2,000

A department adds material at the beginning of a process and identifies defective units when the process is 40% complete. At the beginning of the period, there was no work in process. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. If all units in ending work in process were 66% complete, then ending work in process should be allocated A. None of the normal defective unit costs. B. 50% of the material costs and 40% of the conversion costs of all normal defective unit costs. C. 40% of all normal defective unit costs. D. 50% of all normal defective unit costs.

D. 50% of all normal defective unit costs.

Carl Slater was the sole proprietor of a high-volume drug store, which he owned for 25 years before he sold it to Statewide Drug Stores, Inc., in 2022. Besides the $800,000 selling price for the store's tangible assets and goodwill, Slater received a lump sum of $60,000 in 2022 for his agreement not to operate a competing enterprise within 10 miles of the store's location, for a period of 6 years. How will the $60,000 be taxed to Slater? A. As ordinary income of $10,000 a year for 6 years. B. As part of the gain on the sale of the store. C. It is excluded since it was not for the performance of services. D. As $60,000 ordinary income in 2022.

D. As $60,000 ordinary income in 2022.

In Year 2, Carson was hired as an employee of Barton Co. As part of his employment contract, Barton provided a company car for Carson's spouse, Mary, who is not employed. The value for the use of the automobile in Year 2 was $8,000. Carson does not use the automobile. Carson and Mary file separate individual income tax returns. What amounts, if any, should be reported as a taxable fringe value on Carson and Mary's Year 2 income tax returns for personal use of the automobile? A. Carson $0; Mary $0. B. Carson $4,000; Mary $4,000. C. Carson $0; Mary $8,000. D. Carson $8,000; Mary $0.

D. Carson $8,000; Mary $0.

Which of the following sets of information does an auditor usually confirm on one form? A. Inventory on consignment and contingent liabilities. B. Accounts receivable and accrued interest receivable. C. Accounts payable and purchase commitments. D. Cash in bank and collateral for loans.

D. Cash in bank and collateral for loans.

An S corporation may deduct A. Foreign income taxes. B. Net operating loss carryovers. C. Charitable contributions within the percentage of income limitation applicable to corporations. D. Compensation of officers.

D. Compensation of officers.

Which of the following phrases will an auditor most likely include in the auditor's report on an engagement for a nonissuer when expressing a qualified opinion because of inadequate disclosure? A. Subject to the departure from generally accepted accounting principles, as described above. B. Does not present fairly in all material respects. C. With the foregoing explanation of these omitted disclosures. D. Except for the omission of the information.

D. Except for the omission of the information.

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of A. Generally accepted auditing standards, which include the concept of materiality. B. Quality control. C. The auditor's assessment of the risk of material misstatement. D. Generally accepted accounting principles.

D. Generally accepted accounting principles.

Current liabilities include which of the following items? I. Obligations due on demand within 1 year II. Obligations callable at any time by the creditor III. Obligations that will be replaced by other current liabilities A. I, II, and III. B. II and III only. C. I and II only. D. I and III only.

D. I and III only.

Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result? A. For an examination of prospective financial statements. B. For a compilation if a third party will use the financial statement and disclosure is not made in the report. C. For an audit or a review if agreed upon by both the CPA and the client. D. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

D. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

During the current year, Cooley Co. had an unrealized holding gain of $100,000 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? A. Net income $25,000 Other comprehensive income $75,000 B. Net income $75,000 Other comprehensive income $25,000 C. Net income $100,000 Other comprehensive income $0 D. Net income $0 Other comprehensive income $75,000

D. Net income $0 Other comprehensive income $75,000

A statement of cash flows prepared using the indirect method would have cash activities listed in which one of the following orders? A. Financing, investing, operating. B. Investing, financing, operating. C. Operating, financing, investing. D. Operating, investing, financing.

D. Operating, investing, financing.

The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is A. Fixed by a public authority. B. Based on the results of judicial proceedings in a tax matter. C. Based on a price quotation submitted in competitive bidding. D. Payable after a specified finding is attained in a review of financial statements.

D. Payable after a specified finding is attained in a review of financial statements.

Which of the following documents are examples of audit evidence generated by the client? A. Bills of lading and accounts receivable confirmations. B. Vendor invoices and packing slips. C. Customer purchase orders and bank statements. D. Shipping documents and receiving reports.

D. Shipping documents and receiving reports.

Miller Co. discovered that, in the prior year, it failed to report $40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year was 40%. What was the impact of the error on Miller's financial statements for the prior year? A. Understatement of depreciation expense of $24,000. B. Understatement of net income of $24,000. C. Understatement of accumulated depreciation of $24,000. D. Understatement of accumulated depreciation of $40,000.

D. Understatement of accumulated depreciation of $40,000.