Financial Accounting and Reporting
1. If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be:
a. Reported as a gain in the income statement.
b. Treated as a reduction in the carrying amount of remaining treasury stock.
c. Credited to additional paid-in capital.
d. Credited to retained earnings.
2. Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal annual year-
end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase,
Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned
by Leaf over the life of this note?
a) $5,045
b) $5,560
c) $8,000
d) $9,000
3. Briar Co. signed a government construction contract providing for a formula price of actual cost plus
10 percent. In addition, Briar was to receive one-half of any savings resulting from the formula price
being less than the target price of $2,200,000. Briar's actual costs incurred were $1,920,000. How
much should Briar receive from the contract?
a. $2,060,000
b. $2,112,000
c. $2,156,000
d. $2,200000
4. Which fund may account for a university's internally designated fund, the income from which will
be used for a specified purpose?
a. Endowment fund
b. Term endowment fund
c. Quasi-endowment fund
d. Restricted current fund
5. A material loss should be presented separately as a component of income from continuing
operations when it is:
a. An extraordinary item.
b. A cumulative effect type change in accounting principle.
c. Unusual in nature and infrequent in occurrence.
d. Not unusual in nature but infrequent in occurrence.
Auditing
1) Which of the following circumstances most likely would cause an auditor to consider whether
material misstatements exist in an entity's financial statements?
a) Supporting records that should be readily available are frequently not produced when
requested.
b) Reportable conditions previously communicated have not been corrected.
c) Clerical errors are listed on a monthly computer-generated exception report.
d) Differences are discovered during the client's annual physical inventory count.
2) An auditor is testing internal control procedures that are evidenced on an entity's vouchers by
matching random numbers with voucher numbers. If a random number matches the number of a
voided voucher, that voucher ordinarily should be replaced by another voucher in the random
sample if the voucher:
a) Constitutes a deviation
b) Has been properly voided
c) Cannot be located
d) Represents an immaterial dollar amount
3) In evaluating the reasonableness of an accounting estimate, an auditor most likely would
concentrate on key factors and assumptions that are:
a) Consistent with prior periods
b) Similar to industry guidelines
c) Objective and not susceptible to bias
d) Deviations from historical patterns
4) An auditor may achieve audit objectives related to particular assertions by:
a) Performing analytical procedures
b) Adhering to a system of quality control
c) Preparing auditor working papers
d) Increasing the level of detection risk
5) Which of the following computer-assisted auditing techniques allows fictitious and real
transactions to be processed together without client-operating personnel being aware of the testing
process?
a) Integrated test facility.
b) Input controls matrix.
c) Parallel simulation.
d) Data entry monitor.
Regulation
1. George reads an ad in the newspaper that has the following language: "Come visit our new auto
dealership! The first ten visitors at 6:00 a.m. Wednesday morning get a new BMW for a mere
$43,000!" George goes to the dealership on Wednesday morning and is one of the first ten
visitors. George has:
(a) Made a valid unilateral contract with the dealership.
(b) Not made a valid contract with the dealership.
(c) Received only an invitation to make an offer from the dealership.
(d) None of the above.
2. Peters Co. repairs computers. On February 9, 19X1, Stark Electronics Corp. sold Peters a
circuit tester on credit. Peters executed an installment note for the purchase price, a security
agreement covering the tester, and a financing statement that Stark filed on February 11, 19X1.
On April 13, 19X1, creditors other than Stark filed an involuntary petition in bankruptcy
against Peters. What is Stark's status in Peters' bankruptcy?
(a) Stark will be treated as an unsecured creditor because Stark did not join in the filing
against Peters.
(b) Stark's security interest constitutes a voidable preference because the financing
statement was not filed until February 11.
(c) Stark's security interest constitutes a voidable preference because the financing
statement was filed within ninety days before the bankruptcy proceeding was filed.
(d) Stark is a secured creditor and can assert a claim to the circuit tester that will be
superior to the claims of Peters' other creditors.
3. Which of the following will not be discharged in a bankruptcy proceeding?
(a) Claims resulting out of an extension of credit based upon false representations.
(b) Claims of secured creditors which remain unsatisfied after their receipt of the
proceeds from the disposition of the collateral
(c) Claims for unintentional torts which resulted in bodily injury to the claimant
(d) Claims arising out of breach of contract by the debtor
4. A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate
tax return information, if the disclosure is made:
a. To enable a third party to solicit business from the taxpayer.
b. To enable the tax processor to electronically compute the taxpayer's liability.
c. For peer review.
d. Under an administrative order by a state agency that registers tax return preparers.
5. The profession's ethical standards most likely would be considered to have been violated when a
CPA represents that specific consulting services will be performed for a stated fee, and it is apparent at
the time of the representation that:
a. Actual fee would be substantially higher.
b. Actual fee would be substantially lower than the fees charged by other CPAs for comparable
services
c. CPA would not be independent
d. Fee was a competitive bid
Business Environment and Concepts
1) Which of the following requirements must be met to have a valid partnership exist? I. Co-
ownership of all property used in a business. II. Co-ownership of a business for profit.
a) I only.
b) II only
c) Both I and II
d) Neither I nor II
2) The most likely strategy to reduce the breakeven point would be to:
a) Decrease the fixed costs and increase the contribution margin.
b) Increase the fixed costs and decrease the contribution margin.
c) Increase both the fixed costs and the contribution margin.
d) Decrease both the fixed costs and the contribution margin.
3) The total market value of all final goods produced by the citizens of a country is called:
a) Gross domestic product.
b) Personal income.
c) Gross national product.
d) Disposable income.
4. If the Federal Reserve wanted to reduce the supply of money as part of an anti-inflation policy, it
might:
a. Buy U.S. securities on the open market.
b. Buy U.S. securities directly from the Treasury.
c. Lower the discount rate.
d. Increase the reserve requirements
5. In 1992, Cape Company recorded book income of $140,000. Included in that amount was
$50,000 for meal and entertainment expenses and $40,000 for federal income tax expenses. In
Cape's schedule M-1 of Form 1120, which reconciles book income and taxable income, what
amount should be reported as taxable income?
a. $205,000
b. $190,000
c. $180,000
d. $140,000