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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Under the Securities Act of 1933, which of the following statements most accurately reflects how securities registration affects an investor?a. The investor is provided with information on the stockholders of the offering corporation.b. The investor is provided with information on the principal
A tombstone advertisementa. May be substituted for the prospectus under certain circumstances.b. May contain an offer to sell securities.c. Notifies prospective investors that a previouslyoffered security has been withdrawn from the market and is therefore effectively “dead.”d. Makes known the
Under the Securities Exchange Act of 1934, which of the following types of instruments is excluded from the definition of “securities”?a. Investment contracts.b. Convertible debentures.c. Nonconvertible debentures.d. Certificates of deposit.
A preliminary prospectus, permitted under SEC Regulations, is known as thea. Unaudited prospectus.b. Qualified prospectus.c. “Blue-sky” prospectus.d. “Red-herring” prospectus.
According to the standards of the profession, which of the following sources of information should a CPA consider before signing a client’s tax return?I. Information actually known to the CPA from the tax return of another client.II. Information provided by the client that appears to be correct
Which of the following acts by a CPA will not result in a CPA incurring an IRS penalty?a. Failing, without reasonable cause, to provide the client with a copy of an income tax return.b. Failing, without reasonable cause, to sign a client’s tax return as preparer.c. Understating a client’s tax
According to the profession’s ethical standards, a CPA preparing a client’s tax return may rely on unsupported information furnished by the client, without examining underlying information, unless the informationa. Is derived from a pass-through entity.b. Appears to be incomplete on its face.c.
According to the standards of the profession, which of the following statements is(are) correct regarding the action to be taken by a CPA who discovers an error in a client’s previously filed tax return?I. Advise the client of the error and recommend the measures to be taken.II. Withdraw from the
According to the AICPA Statement on Standards for Tax Services, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?a. A CPA may recommend a position that the CPA concludes is frivolous as long as
A CPA will be liable to a tax client for damages resulting from all of the following actions excepta. Failing to timely file a client’s return.b. Failing to advise a client of certain tax elections.c. Refusing to sign a client’s request for a filing extension.d. Neglecting to evaluate the
In general, if the IRS issues a thirty-day letter to an individual taxpayer who wishes to dispute the assessment, the taxpayera. May, without paying any tax, immediately file a petition that would properly commence an action in Tax Court.b. May ignore the thirty-day letter and wait to receive a
A CPA owes a duty toa. Provide for a successor CPA in the event death or disability prevents completion of an audit.b. Advise a client of errors contained in a previously filed tax return.c. Disclose client fraud to third parties.d. Perform an audit according to GAAP so that fraud will be uncovered.
A CPA who prepares clients’ federal income tax returns for a fee musta. File certain required notices and powers of attorney with the IRS before preparing any returns.b. Keep a completed copy of each return for a specified period of time.c. Receive client documentation supporting all travel and
Clark, a professional tax return preparer, prepared and signed a client’s 2010 federal income tax return that resulted in a $600 refund. Which one of the following statements is correct with regard to an Internal Revenue Code penalty Clark may be subject to for endorsing and cashing the
Which, if any, of the following could result in penalties against an income tax return preparer?I. Knowing or reckless disclosure or use of tax information obtained in preparing a return.II. A willful attempt to understate any client’s tax liability on a return or claim for refund.a. Neither I
A tax return preparer may disclose or use tax return information without the taxpayer’s consent toa. Facilitate a supplier’s or lender’s credit evaluation of the taxpayer.b. Accommodate the request of a financial institution that needs to determine the amount of taxpayer’s debt to it, to be
A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate tax return information, if the disclosure is madea. 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
A penalty for understated corporate tax liability can be imposed on a tax preparer who fails toa. Audit the corporate records.b. Examine business operations.c. Copy all underlying documents.d. Make reasonable inquiries when taxpayer information appears incorrect.
Kopel was engaged to prepare Raff’s 2009 federal income tax return. During the tax preparation interview, Raff told Kopel that he paid $3,000 in property taxes in 2009.Actually, Raff’s property taxes amounted to only $600.Based on Raff’s word, Kopel deducted the $3,000 on Raff’s return,
To avoid tax return preparer penalties for a return’s understated tax liability due to an intentional disregard of the regulations, which of the following actions must a tax preparer take?a. Audit the taxpayer’s corresponding business operations.b. Review the accuracy of the taxpayer’s books
Vee Corp. retained Water, CPA, to prepare its 2010 income tax return. During the engagement, Water discovered that Vee had failed to file its 2005 income tax return.What is Water’s professional responsibility regarding Vee’s unfiled 2005 income tax return?a. Prepare Vee’s 2005 income tax
Which of the following acts constitute(s) grounds for a tax preparer penalty?I. Without the taxpayer’s consent, the tax preparer disclosed taxpayer income tax return information under an order from a state court.II. At the taxpayer’s suggestion, the tax preparer deducted the expenses of the
The Sarbanes-Oxley Act of 2002 requires rotation of the audit partner on a public company audit at least everya. 3 years.b. 5 years.c. 7 years.d. 10 years.
Generally a Form 8-K must be filed with the SECa. Annually.b. Quarterly.c. Within four days of the occurrence of a triggering event.d. Within 10 days of the occurrence of a triggering event.
Under the Sarbanes-Oxley Act, which of the following individuals are required personally to certify to the accuracy of financial statements filed with the SEC?a. The chief financial officer and the chief executive officer.b. The chief financial officer, the chief executive officer, and the
The Sarbanes-Oxley Act includes all of the following provisions, except:a. Penalties for failure to retain audit workpapers.b. Requirement for registration of CPA firms to audit public companies.c. Requirement for inspection of public-company audits.d. Requirement for a minimum level of experience
Which of the following Boards has the responsibility to regulate CPA firms that audit public companies?a. Auditing Standards Board.b. Public Oversight Board.c. Public Company Accounting Oversight Board.d. Accounting Standards Board.
Which of the following nonattest services are auditors allowed to perform for a public company?a. Bookkeeping services.b. Appraisal services.c. Tax services.d. Internal audit services.
Bran, CPA, audited Frank Corporation. The shareholders sued both Frank and Bran for securities fraud under the Federal Securities Exchange Act of 1934. The court determined that there was securities fraud and that Frank was 80% at fault and Bran was 20% at fault due to her negligence in the audit.
The Private Securities Litigation Reform Acta. Applies only to securities not purchased from a stock exchange.b. Does not apply to common stock of a publicly held corporation.c. Amends the Federal Securities Act of 1933 and the Federal Securities Exchange Act of 1934.d. Does not apply to preferred
Lin, CPA, is auditing the financial statements of Exchange Corporation under the Federal Securities Exchange Act of 1934. He detects what he believes are probable material illegal acts. What is his duty under the Private Securities Litigation Reform Act?a. He must inform the principal shareholders
Which of the following is an auditor required to do under the Private Securities Litigation Reform Act concerning audits under the Federal Securities Exchange Act of 1934?I. Establish procedures to detect material illegal acts of the client being audited.II. Evaluate the ability of the firm being
Which of the following is an auditor not required to establish procedures for under the Private Securities Litigation Reform Act?a. To develop a comprehensive internal control system.b. To evaluate the ability of the firm to continue as a going concern.c. To detect material illegal acts.d. To
McGee is auditing Nevus Corporation and detects probable criminal activity by one of the employees. McGee believes this will have a material impact on the financial statements. The financial statements of Nevus Corporation are under the Securities Exchange Act of 1934. Which of the following is
Which of the following acts allows civil suits with the potential recovery of treble damages?a. The Racketeer Influenced and Corrupt Organizations Act.b. The Securities Act of 1933.c. The Securities Exchange Act of 1934.d. Federal tax acts.
A CPA may be held criminally liable under any of the following, except:a. The Securities Act of 1933.b. Common law.c. The Racketeer Influenced and Corrupt Organizations Act.d. Federal tax laws.
Which of the following statements concerning an accountant’s disclosure of confidential client data is generally correct?a. Disclosure may be made to any state agency without subpoena.b. Disclosure may be made to any party on consent of the client.c. Disclosure may be made to comply with an IRS
A violation of the profession’s ethical standards most likely would have occurred when a CPAa. Issued an unqualified opinion on the 2002 financial statements when fees for the 2001 audit were unpaid.b. Recommended a controller’s position description with candidate specifications to an audit
Thorp, CPA, was engaged to audit Ivor Co.’s financial statements. During the audit, Thorp discovered that Ivor’s inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial. Ivor claimed accountant-client privilege to prevent Thorp from
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA who has purchased the CPA’s tax practice.II. Another CPA firm if the information concerns suspected tax return irregularities.III. A state CPA society voluntary quality control
To which of the following parties may a CPA partnership provide its working papers without either the client’s consent or a lawful subpoena?The IRS The FASBa. Yes Yesb. Yes Noc. No Yesd. No No
To which of the following parties may a CPA partnership provide its working papers, without being lawfully subpoenaed or without the client’s consent?a. The IRS.b. The FASB.c. Any surviving partner(s) on the death of a partner.d. A CPA before purchasing a partnership interest in the firm.
Which of the following statements is correct regarding a CPA’s working papers? The working papers must bea. Transferred to another accountant purchasing the CPA’s practice even if the client hasn’t given permission.b. Transferred permanently to the client if demanded.c. Turned over to any
Which of the following statements is correct with respect to ownership, possession, or access to a CPA firm’s audit working papers?a. Working papers may never be obtained by third parties unless the client consents.b. Working papers are not transferable to a purchaser of a CPA practice unless the
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart’s financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay’s opinion was included in Dart’s registration statement. Larson
Under Section 11 of the Securities Act of 1933, which of the following standards may a CPA use as a defense?Generally accepted accounting principles Generally accepted fraud detection standardsa. Yes Yesb. Yes Noc. No Yesd. No No
Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acteda. Negligently.b. With independence.c. Without due diligence.d. Without good faith.
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart’s financial statements and gave an unqualified opinion, despite knowing that the financial statements contained misstatements. Jay’s opinion was included in Dart’s registration statement. Larson
Danvy, a CPA, performed an audit for Lank Corporation.Danvy also performed an S-1 review to review events subsequent to the balance sheet date. If Danvy fails to further investigate suspicious facts, under which of these can he be found negligent?a. The audit but not the review.b. The review but
Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As a result of Ocean’s negligence in conducting the audit, the financial statements included material misstatements. Ocean was unaware of this fact. The financial statements and Ocean’s unqualified opinion were
Under Section 11, which of the following must be proven by a purchaser of the security?Reliance on the financial statements Fraud by the CPAa. Yes Yesb. Yes Noc. No Yesd. No No
Under Section 11, a CPA usually will not be liable to the purchasera. If the purchaser is contributorily negligent.b. If the CPA can prove due diligence.c. Unless the purchaser can prove privity with the CPA.d. Unless the purchaser can prove scienter on the part of the CPA.
If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled toa. Damages of three times the original public offering price.b. Rescind the transaction.c. Monetary damages only.d. Damages, but only if the shares were resold before the suit was started.
In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove thata. Jay knew of the misstatements.b. Jay was negligent.c. The misstatements contained in Dart’s financial statements were material.d. The unqualified opinion contained in
Beckler & Associates, CPAs, audited and gave an unqualified opinion on the financial statements of Queen Co.The financial statements contained misstatements that resulted in a material overstatement of Queen’s net worth.Queen provided the audited financial statements to Mac Bank in connection
Quincy bought Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth &Co., CPAs, gave an unqualified opinion on Teal’s financial statements that were included in the registration statement filed with the SEC. Quincy sued Worth under the provisions of the 1933
In a suit by a purchaser against Larson for common law fraud, Larson’s best defense would be thata. Larson did not have actual or constructive knowledge of the misstatements.b. Larson’s client knew or should have known of the misstatements.c. Larson did not have actual knowledge that the
In a suit by a purchaser against Larson for common law negligence, Larson’s best defense would be that thea. Audit was conducted in accordance with generally accepted auditing standards.b. Client was aware of the misstatements.c. Purchaser was not in privity of contract with Larson.d. Identity of
Under the Ultramares rule, to which of the following parties will an accountant be liable for negligence?Parties in privity Foreseen partiesa. Yes Yesb. Yes Noc. No Yesd. No No
A CPA audited the financial statements of Shelly Company.The CPA was negligent in the audit. Sanco, a supplier of Shelly, is upset because Sanco had extended Shelly a high credit limit based on the financial statements which were incorrect. Which of the following statements is the most correct?a.
In a common law action against an accountant, lack of privity is a viable defense if the plaintiffa. Is the client’s creditor who sues the accountant for negligence.b. Can prove the presence of gross negligence that amounts to a reckless disregard for the truth.c. Is the accountant’s client.d.
If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA based ona. Negligence.b. Gross negligence.c. Strict liability.d. Criminal deceit.
Which of the following elements, if present, would support a finding of constructive fraud on the part of a CPA?a. Gross negligence in applying generally accepted auditing standards.b. Ordinary negligence in applying generally accepted accounting principles.c. Identified third-party users.d.
A CPA’s duty of due care to a client most likely will be breached when a CPAa. Gives a client an oral instead of written report.b. Gives a client incorrect advice based on an honest error of judgment.c. Fails to give tax advice that saves the client money.d. Fails to follow generally accepted
When performing an audit, a CPA will most likely be considered negligent when the CPA fails toa. Detect all of a client’s fraudulent activities.b. Include a negligence disclaimer in the client engagement letter.c. Warn a client of known internal control weaknesses.d. Warn a client’s customers
When performing an audit, a CPAa. Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.b. Must strictly adhere to generally accepted accounting principles.c. Is strictly liable for failing to discover client fraud.d. Is not liable unless
Ford & Co., CPAs, issued an unqualified opinion on Owens Corp.’s financial statements. Relying on these financial statements, Century Bank lent Owens $750,000. Ford was unaware that Century would receive a copy of the financial statements or that Owens would use them to obtain a loan. Owens
Which of the following statements best describes whether a CPA has met the required standard of care in conducting an audit of a client’s financial statements?a. The client’s expectations with regard to the accuracy of audited financial statements.b. The accuracy of the financial statements and
Cable Corp. orally engaged Drake & Co., CPAs, to audit its financial statements. Cable’s management informed Drake that it suspected the accounts receivable were materially overstated. Though the financial statements Drake audited included a materially overstated accounts receivable balance,
Which of the following may not result in automatic expulsion from the AICPA?a. Revocation of CPA certificate by an authorized body.b. Filing a fraudulent tax return.c. Failure to file a required tax return.d. Conviction for a felony or a misdemeanor.
Which of the following is not a possible result of an AICPA investigation of a member for an ethics violation?a. Revocation of right to prepare tax returns.b. Admonishment.c. Corrective action.d. Expulsion.
Which of the following bodies issue permits to practice for CPAs?a. The AICPA.b. The SEC.c. The state boards of accountancy.d. The PCAOB.
The statement of operations for a private, nonprofit hospital should include a performance indicator that indicates the results of operations for a period. Which of the following items would be included in a hospital’s performance indicator reported on the statement of operations?I. Proceeds from
Unrealized gains on investments which are permanently restricted as to use by donors are reported by a private, nonprofit hospital on thea. Statement of operations.b. Statement of cash flows.c. Statement of changes in net assets.d. Statement of operations and statement of cash flows.
Which of the following financial statements of a private, nonprofit hospital reports the changes in unrestricted, temporarily restricted, and permanently restricted net assets for a time period?Balance sheet Statement of operationsa. Yes Yesb. Yes Noc. No Yesd. No No
Wilson Hospital, a nonprofit hospital affiliated with Wilson College, had the following cash receipts for the year ended December 31, 2009:Collections of health care receivables $750,000 Contribution from donor to establish a term endowment 250,000 Tuition from nursing school 50,000 Dividends
Tucker Hospital, a nonprofit hospital affiliated with Tucker University, received a donation of medical supplies during the year ended December 31, 2009. The supplies cost the vendor $10,000 and had a selling price of $15,000 on the date they were donated. The vendor did not place any restrictions
On the statement of operations for a nonprofit, nongovernmental hospital, which of the items below is included in the amount reported for “revenue and gains over expenses and losses” (the performance indicator)?I. Unrealized loss on other than trading securities. The securities are included in
On December 31, 2009, interest of $3,000 was received from BMI, and the fair value of the BMI bonds was $105,000. The governing board acquired the BMI bonds with cash which was unrestricted, and it classified the bonds as trading securities at December 31, 2009, since it intends to sell all of the
The governing board of Smithson Hospital, a nonprofit hospital affiliated with a religious organization, acquired 100 BMI Company bonds for $103,000 on June 30, 2009. The bonds pay interest on June 30 and December
Swathmore Hospital, a nonprofit hospital affiliated with Swathmore University, received the following cash contributions from donors during the year ended December 31, 2008:Contributions restricted by donors for research $ 50,000 Contributions restricted by donors for capital acquisitions 250,000
Michael Hospital, a nonprofit hospital affiliated with a private university, reported the following information for the year ended December 31, 2009:Cash contributions received from donors for capital additions to be acquired in 2010 $150,000 Proceeds from sales at hospital gift shop and snack bar
James Hospital, a nonprofit hospital affiliated with a private university, provided $200,000 of charity care for patients during the year ended December 31, 2009. The hospital should report this charity carea. As net patient service revenue of $200,000 on the statement of operations.b. As net
Kash Hospital, a private sector, not-for-profit organization, has gross patient service revenues of $750,000, charity care of $75,000, amounts disallowed by third-party payors of $63,000, and donor-unrestricted contributions of$110,000. What is the amount of net patient service revenue?a.
How are nonrefundable advance fees representing payments for future services to be accounted for by nonprofit continuing care retirement communities?a. As revenue.b. As a liability.c. As other financing sources.d. In a trust fund.
How is charity care accounted for on the financial statements of a not-for-profit private sector health care organization?a. As patient service revenue.b. As bad debt expense.c. As a separate component of revenue.d. Not included on the financial statements.
Which of the following would be acceptable as a performance indicator on a private sector health care entity’s statement of operations?a. Increase in unrestricted net assets.b. Net income.c. Increase in net assets.d. Excess of revenues over expenses.
When functional classifications are used by private sector health care organizations, they should be based ona. Net present value.b. Full cost allocations.c. Percentage allocations.d. Resale value.
If private not-for-profit health care entities do not use this expense classification on the operating statement, they must provide it in the notes.a. Natural.b. Character.c. Functional.d. Object.
Which of the following can be included in the performance indicator on the statement of operations for private sector health care organizations?a. Extraordinary items.b. Premium revenue from capitation agreements.c. Equity transfers.d. Contributions of long-lived assets.
Which of the following is not covered by the AICPA Audit and Accounting Guide, Health Care Organizations?a. Nursing homes.b. Home health agencies.c. Hospitals.d. Voluntary health and welfare organizations.
For private sector health care organizations, which of the following is included in patient service revenue?a. Contractual adjustments.b. Charity care.c. Significant revenue under capitation agreements(premium revenue).d. Unrestricted contributions.
Williams Hospital, a nonprofit hospital affiliated with a religious group, reported the following information for the year ended December 31, 2009:Gross patient service revenue at the hospital’s full established rates $980,000 Bad debts expense 10,000 Contractual adjustments with third-party
Elizabeth Hospital, a nonprofit hospital affiliated with a religious group, should prepare which of the following financial statements?Statement of Statement changes in net assets of operationsa. Yes Nob. No Yesc. Yes Yesd. No No
A not-for-profit organization receives an asset for which they have little or no discretion over the use of the asset. The organization should report the asset as a(n)a. Contribution.b. Agency transaction.c. Exchange.d. Conditional transfer.
Depending on the extent of discretion that the not-forprofit recipient has over the use or subsequent disposition of the assets, gifts in kind may be treated as Agency transactions Contributionsa. No Nob. No Yesc. Yes Yesd. Yes No
Which of the following are considered to be capital additions in the statement of activity of a not-for-profit organization?I. Nonexpendable gifts, grants, and bequests restricted by donors to endowment funds.II. Legally restricted investment income on investments held in endowment funds that must
Under which of the following cases should joint costs be allocated between fund-raising and the appropriate program or management and general function?a. An appeal for funds accompanied by a statement of the mission of the not-for-profit entity.b. An appeal for funds accompanied by a brochure
An arrangement where a donor makes an initial gift to a trust or directly to the not-for-profit organization, in which the not-for-profit organization has a beneficial interest but is not the sole beneficiary is known as aa. Donor-imposed condition.b. Donor-imposed restriction.c. Share-the-wealth
The Taft family lost its home in a flood in October 2009. In November of 2009, Mary Wilson donated cash to Goodbody Benevolent Society to purchase furniture for the Taft family. In December 2009, Goodbody purchased this furniture for the Taft family. How should Goodbody report the receipt of the
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