CPA-TEST Online Practice Questions and Answers

Correct Answer: C

Explanation:

Choice "c" is correct. Because timely communication may be important, the auditor may choose to

communicate significant deficiencies during the course of the audit rather than after the audit is concluded.

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

Choice "b" is incorrect. All material weaknesses are significant deficiencies, but not all significant

deficiencies are material weaknesses.

Choice "d" is incorrect. Because of the potential for misinterpretation, the auditor should not issue a written

report representing that no significant deficiencies were noted during the audit.

Correct Answer: D

Explanation:

Choice "d" is correct. The articles must set out the corporation's authorized shares.

Choice "a" is incorrect. Quorum requirements, if stated at all, usually are in the bylaws; they need not be

included in the articles of incorporation.

Choice "b" is incorrect. The articles need not include the names of stockholders.

Choice "c" is incorrect. The RMBCA has eliminated the concept of par value and so does not have a requirement that par value be established in the articles.

Correct Answer: B

Explanation:

Choice "b" is correct. A minimum wage that is set above the equilibrium wage will result in an excess

supply (or surplus) of labor.

Choice "a" is incorrect, since the quantity demanded of labor at $7 is less than the quantity supplied,

implying an excess supply not an excess demand.

Choice "c" is incorrect. An increase in the minimum wage causes a decrease in quantity demanded of

labor, not a decrease in the demand (shift in demand) for labor.

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

Correct Answer: C

Explanation:

Choice "c" is correct. Cash flow is computed from net income by adding back non-cash expenses like

depreciation and amortization. Presumably, interest expense has been paid (i.e., is not "accrued" interest)

and should not be added back.

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

Correct Answer: B

Explanation:

Choice "b" is correct. The WACC is computed by multiplying the required returns on equity and debt by the

percentage of equity and debt used to finance that particular project. ABC will use 33% debt ($10 million of

$30 million total project cost) and 67% equity ($20 million of $30 million total project cost).

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

Correct Answer: D

Explanation:

Choice "d" is correct. The net present value method of capital budgeting assumes that cash flows are

reinvested at the discount rate used in the analysis.

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

Correct Answer: D

Explanation:

Choice "d" is correct. Refinancing a short-term note payable with a two-year note payable would increase

the working capital of a firm.

Choice "a" is incorrect. The purchase of a new plant (fixed asset) financed by a 20-year mortgage (long term debt with a one-year current portion) would reduce working capital because current liabilities would be increased. Choice "b" is incorrect. The cash collection of accounts receivable has no effect on working capital-cash increases by the amount that A/R decreases. Choice "c" is incorrect. The payment of a 20-year mortgage payable (long-term debt) would reduce cash and have no effect on current liabilities, thereby reducing working capital.

Correct Answer: D

Explanation:

Choice "d" is correct. Once the decision has been made to dispose of a component of a business and that

component meets the criteria to be classified as held for sale, the operating results of the component for

the period reported on, and any gain or loss from the disposal, should be reported separately from

continuing operations, net of tax. In this question, the component was classified as held for sale and was

sold in the same year.

Thus, in 20X4, the results of operations, the $300,000 ($500,000-$800,000) loss, are reported as a loss

from discontinued operations. The loss on disposal would be reported as part of that loss from

discontinued operations also.

Choice "a" is incorrect. The results of operations prior to the decision date, and also after the decision date,

are reported separately from the results of continuing operations as a part of discontinued operations.

Choice "b" is incorrect. The results of operations prior to the decision date, and also after the decision date,

are reported separately from the results of continuing operations as a loss from operations of a component

and included in loss from discontinued operations.

Choice "c" is incorrect. The results of discontinued operations are not reported as an extraordinary item.

Correct Answer: B

Explanation:

Choice "b" is correct. A change in the estimated useful life of a depreciable asset is a change in estimate

handled prospectively. No adjustment to retained earnings is necessary.

Choice "a" is incorrect. The correction of a failure to provide for uncollectible accounts is considered to be

a correction of an error. The opening balance of retained earnings would be adjusted to correct the error.

Choice "c" is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the

cumulative effect of the changes.

Choice "d" is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the

cumulative effect of the changes.

Correct Answer: D

Explanation:

Choice "d" is correct. $1,100,000 operating profit for clay.

Rule: Operating profit by segments is based on the measure of profit reported to the "chief operating

decision maker."

Allocations for general operating costs and interest, etc., should not be made solely for purposes of

segment disclosures.