CPA-TEST Online Practice Questions and Answers

Correct Answer: B

Explanation: Choice "b" is correct. The auditor should report whether the information in the condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived. Choice "a" is incorrect. Condensed financial statements do not include all of the disclosures required by GAAP, and therefore would not typically be presented in conformity with GAAP. Choice "c" is incorrect. Condensed financial statements are presented in less detail than complete financial statements, but the fact pattern gives no indication that any comprehensive basis of accounting other than GAAP has been used. Choice "d" is incorrect. The auditor should report whether the information in the condensed financial statements is fairly stated, in all material respects, in relation to the financial statements from which it has been derived, not in relation to supplementary filings under federal security statutes.

Correct Answer: C

Explanation:

Choice "c" is correct. Inventory turnover equals cost of goods sold divided by average inventory.

Beginning inventory ($6,000) plus purchases ($24,000) less ending inventory equals cost of goods sold

($18,000). Thus, ending inventory equals $12,000 and inventory turnover = $18,000 / [($6,000 +

$12,000)/2] = 2.0.

Choice "a" is incorrect. Inventory turnover equals cost of goods sold divided by average inventory.

Choice "b" is incorrect. Cost of goods sold should be divided by average inventory, not by ending

inventory.

Choice "d" is incorrect. Cost of goods sold should be divided by average inventory, not by beginning

inventory.

Correct Answer: C

Explanation: Choice "c" is correct. The purpose of segregating the duties of hiring personnel (personnel department/human resources) and distributing payroll checks (treasurer's department) is to separate the authorization of transactions (hiring, pay rates, etс. are authorized by the personnel department/human resources) from the custody of related assets (cash or checks are held in the treasurer's department). Choice "a" is incorrect. Segregation of hiring personnel (human resources/personnel) from distribution of payroll checks (treasurer's department) does not involve the controllership function. Choice "b" is incorrect. Keeping administrative controls (management's directives) and accounting controls separate is not accomplished by segregating the hiring and distribution functions. Choice "d" is incorrect. Neither operational responsibility nor recordkeeping responsibility includes distributing checks or hiring personnel.

Correct Answer: A

Explanation: Choice "a" is correct. Investigation of variances in a formal budget might show maintenance costs over budget or acquisition costs under budget, either of which would trigger an investigation. Choice "b" is incorrect. Review of journal entries relating to depreciation would not disclose acquisitions misclassified as maintenance expense, since no depreciation would be recorded for the misclassified items. Choice "c" is incorrect. Segregation of duties in the accounts payable department would have no effect on the account classification of an approved invoice. Choice "d" is incorrect. Since the internal auditor would be looking at invoices and checks related to recorded property acquisitions, he or she would not be likely to identify payments that were erroneously excluded from the property account.

Correct Answer: C

Explanation: Choice "c" is correct. Continuous performance of audit tests is required when financial data is processed electronically, without provision of paper documentation, to ensure that controls are operating effectively throughout the period under audit. Choice "a" is incorrect. Discrete phases of planning, interim, and year-end fieldwork are not effective when there is no audit trail, because no evidence is then available to support the operation of the controls or the accuracy of the financial records for periods when the auditor was not present to conduct tests. Choice "b" is incorrect. Consideration of the risk of management fraud is required in all audits, regardless of the method used to process financial data or the adequacy of the paper documentation provided. Choice "d" is incorrect. The completeness assertion must be tested in all audit engagements, regardless of the method used to process financial data or the adequacy of the paper documentation provided.

Correct Answer: D

Explanation: Choice "d" is correct. The test data approach refers to a technique in which the client's application program is used to process a set of test data, the results of which are already known by the auditor. If the client's program is operating effectively, it should generate the same results determined by the auditor. Choice "a" is incorrect. An integrated test facility (not a test data approach) utilizes dummy accounts. For example, using an integrated test facility (ITF) approach, test data is initially commingled with live data, but coding to a dummy account allows later extraction from the system under actual operating conditions. Choice "b" is incorrect. Test data programs should be tailor-made by the auditor for each client's computer applications, to ensure that the data is in an appropriate form for that client's system, and that it includes the types of invalid conditions in which the auditor is interested. Choice "c" is incorrect. Test data contains the types of valid and invalid conditions in which the auditor is interested (it is not necessary to test all combinations of valid and invalid conditions).

Correct Answer: C

Explanation:

Choice "c" is correct. Microcomputer systems are sometimes characterized by weak file and data security,

and are usually accessible by many office personnel. (Manual systems, in contrast, generally restrict one

user from accessing other users' files.) Thus, it is usually easier (increased risk) for unauthorized persons

to access and alter computer system files, especially microcomputer system files.

Choice "a" is incorrect. No difference exists between manual and computer-based systems for detecting

transposition errors.

Choice "b" is incorrect. Transactions should always be authorized before they are executed and recorded,

in both manual and computer-based systems.

Choice "d" is incorrect. Because computer-based processing imposes strict rules on input and processing,

generally there are fewer random processing errors.

Correct Answer: D

Explanation: Choice "d" is correct. A merger involves one corporation joining with another corporation. The surviving corporation has all of the rights and liabilities of the merged corporation. Thus, the acquiring corporation automatically becomes liable for all obligations of the acquired corporation. Choice "a" is incorrect. A leveraged buyout is a strategy involving the acquisition of another corporation using a significant amount of borrowed money (bonds or loans). Often, the assets of the corporation being acquired are used as collateral for the loans (in addition to the assets of the acquiring corporation). The acquiring corporation does not automatically become liable for all (or any) obligations of the acquired corporation if it merely acquires another corporation's assets. Choice "b" is incorrect. An acquisition of stock for debt securities does not make the acquiring corporation liable for the obligations of the acquired corporation. The acquiring corporation has simply purchased stock. In an acquisition of stock for debt securities, the acquired corporation becomes a subsidiary of the acquiring corporation and the acquired corporation remains a separate entity liable for its own obligations. Choice "c" is incorrect. A cash tender offer is an offer to purchase a corporation's stock directly from its shareholders at a specified price for a specified period of time. In a cash tender offer, the acquiring corporation does not automatically become liable for all obligations of the acquired corporation. In fact, if there is only an offer, there is no transaction at all.

Correct Answer: A

Explanation:

Choice "a" is correct.

Choices "b", "c", and "d" are incorrect based on the above Explanation.

Correct Answer: C

Explanation:

Choice "c" is correct. The formula for computing the cost of credit discounts is:

Choices "a", "b", and "d" are incorrect, per the above calculation.