CPA-TEST Online Practice Questions and Answers

Correct Answer: C

Explanation: Choice "c" is correct. A review of data included in financial statements of a nonissuer is performed under Statements on Standards for Accounting and Review Services, not under PCAOB (auditing) standards. A review of interim financial information under PCAOB (auditing) standards is only conducted for public companies (or companies anticipating going public). Choice "a" is incorrect. When an entity is required by the SEC to file a quarterly report, the SEC also requires that an independent accountant perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards before the report is filed. Choice "b" is incorrect. When a company is required by the SEC to include selected quarterly financial data in its annual report or in other SEC filings, a review (of the interim financial information) in accordance with PCAOB (auditing) standards is required. Choice "d" is incorrect. An accountant performing an initial audit of financial statements that include selected quarterly data should also perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards as part of the overall audit.

Correct Answer: D

Explanation: Choice "d" is correct. Proper authorization of write-offs of uncollectible accounts are approved by the treasurer, who is not involved in the record-keeping function or the initiation of the write-off. Choice "a" is incorrect. Proper segregation of duties requires that the authorization of the write-off be performed by individuals not involved with the accounts receivable department that records the original transactions. Choice "b" is incorrect. The credit department should grant credit and approve credit limits before the sale is made. If the credit department also approved the write-offs of accounts, there would be a lack of appropriate segregation of duties. Choice "c" is incorrect. Even though the accounts payable department is independent of the accounts receivable department, they are not particularly knowledgeable regarding the customers and therefore would not be the best candidates for authorizing the write-offs of accounts receivable.

Correct Answer: D

Explanation:

Choice "d" is correct. While the auditor will frequently use many valid and invalid conditions, it is not

feasible to test every possible valid and invalid condition using a test data approach.

Choice "a" is incorrect. Test data consists of a set of fictitious entries or inputs that are processed through

the client's computer system under the control of the auditor.

Choice "b" is incorrect. The auditor need only include valid and invalid conditions that interest the auditor. Choice "c" is incorrect. Only one transaction of each type need be tested, as the system should process similar transactions in a consistent manner.

Correct Answer: D

Explanation:

Choice "d" is correct. The auditor should separately identify those significant deficiencies that are

considered to be material weaknesses.

Choice "a" is incorrect. Not all significant deficiencies are material weaknesses.

Choice "b" is incorrect. The auditor is not obligated to search for significant deficiencies. The auditor is

obligated to communicate to the client any significant deficiencies identified while auditing the financial

statements.

Choice "c" is incorrect. The auditor is obligated to re-communicate significant deficiencies each year, even

if management has acknowledged its understanding of such deficiencies.

Correct Answer: D

Explanation:

Choice "d" is correct. Both choices "b" and "c" can cause a recession. A recession is defined as a period of

falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a

decrease in aggregate supply.

Choice "a" is incorrect. An increase in aggregate demand will cause GDP to increase NOT decrease.

Choice "b" is incorrect, per the above Explanation.

Choice "c" is incorrect, per the above Explanation.

Correct Answer: C

Explanation:

Choice "c" is correct, as it is not a factor that would cause market competitiveness to be even stronger.

Choices "a", "b", and "d" are incorrect because they are all reasons that competition becomes an even

stronger force that impacts the firm's profitability. The following are situations that would cause competition

to be an even stronger force impacting the profitability of a firm:

•

The market is not growing fast.

•

There are several equal-sized firms in the market.

•

Customers do not have strong brand preferences.

•

The costs of exiting the market exceed the costs of continuing to operate.

•

Some firms profit from making certain moves to increase market share.

•

The various firms in the market use different types of strategic plans.

Correct Answer: B

Explanation:

Choice "b" is correct. A 50-week year would mean that 200 units are sold per week (10,000 units per year

over 50 weeks). Therefore, 800 units are sold during the lead-time (4 weeks × 200 units per week).

Required safety stock is 1,300 units, which means that no less than 1,300 units must be on hand at any

time. The reorder point is then 2,100 units (1,300 safety stock plus the 800 units used during lead time).

Choices "a", "c", and "d" are incorrect, per the above Explanation.

Correct Answer: B

Explanation:

Choice "b" is correct. The correction of an error in the financial statements of a prior period should be

reported, net of tax, in the current statement of retained earnings as an adjustment of the opening balance.

Choice "a" is incorrect. The adjustment is before net income, not after net income.

Choices "c" and "d" are incorrect. Corrections of errors of prior periods go to retained earnings and do not

affect the income statement.

Correct Answer: B

Explanation:

Infrequent net gains not considered extraordinary include:

Choice "b" is correct. $170,000.

Correct Answer: B

Explanation:

Choice "b" is correct. The question asks for AGI, but all of the items in the list are items of potential gross

income. There are no adjustments included in the list; therefore, in this case, AGI is the same as gross

income. The calculation is as follows:

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