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model based testing for embedded systems
Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
On December 31, 2010, Mill Co. sold construction equipment to Drew, Inc. for $1,800,000. The equipment had a carrying amount of $1,200,000. Drew paid $300,000 cash on December 31, 2010, and signed a $1,500,000 note bearing interest at 10%, payable in five annual installments of$300,000. Mill
Dolce Co., which began operations on January 1, 2010, appropriately uses the installment method of accounting to record revenues. The following information is available for the years ended December 31, 2010 and 2011:2010 2011 Sales $1,000,000 $2,000,000 Gross profit realized on sales made in:2010
Luge Co., which began operations on January 2, 2010, appropriately uses the installment sales method of accounting.The following information is available for 2011:Installment accounts receivable, December 31, 2011 $800,000 Deferred gross profit, December 31, 2011 (before recognition of realized
Since there is no reasonable basis for estimating the degree of collectibility, Astor Co. uses the installment method of revenue recognition for the following sales:2010 2009 Sales $900,000 $600,000 Collections from:2009 sales 2010 sales 100,000 300,000 200,000--Accounts written off:2009 sales 2010
Gant Co., which began operations on January 1, 2010, appropriately uses the installment method of accounting.The following information pertains to Gant’s operations for the year 2010:Installment sales $500,000 Regular sales 300,000 Cost of installment sales 250,000 Cost of regular sales 150,000
Before 2010, Droit Co. used the cash basis of accounting.As of December 31, 2010, Droit changed to the accrual basis. Droit cannot determine the beginning balance of supplies inventory. What is the effect of Droit’s inability to determine beginning supplies inventory on its 2010 accrualbasis net
White Co. wants to convert its 2010 financial statements from the accrual basis of accounting to the cash basis.Both supplies inventory and office salaries payable increased between January 1, 2010, and December 31, 2010.To obtain 2010 cash basis net income, how should these increases be added to
Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of Accounts receivable Accrued expensesa. Yes Yesb. Yes Noc. No Nod. No Yes
On February 1, 2011, Tory began a service proprietorship with an initial cash investment of $2,000. The proprietorship provided $5,000 of services in February and received full payment in March. The proprietorship incurred expenses of $3,000 in February, which were paid in April.During March, Tory
Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual method of accounting. Class had $60,000 in cash-basis pretax income for 2010. The following information pertains to Class’s operations for the years ended December 31, 2010 and
The following balances were reported by Mall Co. at December 31, 2010 and 2009:12/31/10 12/31/09 Inventory $260,000 $290,000 Accounts payable 75,000 50,000 Mall paid suppliers $490,000 during the year ended December 31, 2010. What amount should Mall report for cost of goods sold in 2010?a.
The following information pertains to Eagle Co.’s 2010 sales:Cash sales Gross $ 80,000 Returns and allowances 4,000 Credit sales Gross 120,000 Discounts 6,000 On January 1, 2010 customers owed Eagle $40,000. On December 31, 2010, customers owed Eagle $30,000. Eagle uses the direct writeoff method
Marr Corp. reported rental revenue of $2,210,000 in its cash basis federal income tax return for the year ended November 30, 2010. Additional information is as follows:Rents receivable—November 30, 2010 $1,060,000 Rents receivable—November 30, 2009 800,000 Uncollectible rents written off during
Zeta Co. reported sales revenue of $4,600,000 in its income statement for the year ended December 31, 2010.Additional information is as follows:12/31/09 12/31/10 Accounts receivable $1,000,000 $1,300,000 Allowance for uncollectible accounts (60,000) (110,000)Zeta wrote off uncollectible accounts
Ward, a consultant, keeps her accounting records on a cash basis. During 2010, Ward collected $200,000 in fees from clients. At December 31, 2009, Ward had accounts receivable of $40,000. At December 31, 2010, Ward had accounts receivable of $60,000, and unearned fees of$5,000. On an accrual basis,
Jersey, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Jersey sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in
A retail store received cash and issued gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following transactions?Redemption of certificates Lapse of certificatesa. No
On January 1, 2010, Sip Co. signed a five-year contract enabling it to use a patented manufacturing process beginning in 2010. A royalty is payable for each product produced, subject to a minimum annual fee. Any royalties in excess of the minimum will be paid annually. On the contract date, Sip
The premium on a three-year insurance policy expiring on December 31, 2012, was paid in total on January 1, 2010.The original payment was initially debited to a prepaid asset account. The appropriate journal entry has been recorded on December 31, 2010. The balance in the prepaid asset account on
Cooke Company acquires patent rights from other enterprises and pays advance royalties in some cases, and in others, royalties are paid within ninety days after year-end.The following data are included in Cooke’s December 31 balance sheets:2009 2010 Prepaid royalties $55,000 $45,000 Royalties
Decker Company assigns some of its patents to other enterprises under a variety of licensing agreements. In some instances advance royalties are received when the agreements are signed, and in others, royalties are remitted within sixty days after each license year-end. The following data are
Production reports show the following oil sales:June 1, 2009 - November 30, 2009 $300,000 December 1, 2009 - December 31, 2009 50,000 December 1, 2009 - May 31, 2010 400,000 June 1, 2010 - November 30, 2010 325,000 December 1, 2010 - December 31, 2010 70,000 What amount should Rill report as
Rill Co. owns a 20% royalty interest in an oil well. Rill receives royalty payments on January 31 for the oil sold between the previous June 1 and November 30, and on July 31 for oil sold between December 1 and May
In 2009, Super Comics Corp. sold a comic strip to Fantasy, Inc. and will receive royalties of 20% of future revenues associated with the comic strip. At December 31, 2010, Super reported royalties receivable of $75,000 from Fantasy. During 2011, Super received royalty payments of$200,000. Fantasy
Wren Corp.’s trademark was licensed to Mont Co. for royalties of 15% of sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year. Wren received the
Regal Department Store sells gift certificates, redeemable for store merchandise, that expire one year after their issuance. Regal has the following information pertaining to its gift certificates sales and redemptions:Unredeemed at 12/31/09 $ 75,000 2010 sales 250,000 2010 redemptions of prior
Aneen’s Video Mart sells one- and two-year mail order subscriptions for its video-of-the-month business. Subscriptions are collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following:2009 2010 Sales $420,000 $500,000 Less cancellations 20,000
Roro, Inc. paid $7,200 to renew its only insurance policy for three years on March 1, 2010, the effective date of the policy. At March 31, 2010, Roro’s unadjusted trial balance showed a balance of $300 for prepaid insurance and$7,200 for insurance expense. What amounts should be reported for
An analysis of Thrift Corp.’s unadjusted prepaid expense account at December 31, 2010, revealed the following:• An opening balance of $1,500 for Thrift’s comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, 2009.• A $3,200 annual insurance premium payment
Clark Co.’s advertising expense account had a balance of $146,000 at December 31, 2010, before any necessary year-end adjustment relating to the following:• Included in the $146,000 is the $15,000 cost of printing catalogs for a sales promotional campaign in January 2011.• Radio
Under a royalty agreement with another company, Wand Co. will pay royalties for the assignment of a patent for three years. The royalties paid should be reported as expensea. In the period paid.b. In the period incurred.c. At the date the royalty agreement began.d. At the date the royalty agreement
Lin Co., a distributor of machinery, bought a machine from the manufacturer in November 2010 for $10,000. On December 30, 2010, Lin sold this machine to Zee Hardware for $15,000, under the following terms: 2% discount if paid within thirty days, 1% discount if paid after thirty days but within
Amar Farms produced 300,000 pounds of cotton during the 2010 season. Amar sells all of its cotton to Brye Co., which has agreed to purchase Amar’s entire production at the prevailing market price. Recent legislation assures that the market price will not fall below $.70 per pound during the next
On October 1, 2010, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 2010, and the remaining 50,000 gallons were delivered on January 15, 2011. Payment terms were: 50% due on October 1, 2010, 25% due on first
Which of the following accounting literature is not included in the FASB Accounting Standards Codification?a. AICPA Statements of Position.b. FASB Statements.c. Accounting Research Bulletins.d. Statements of Auditing Standards.
On December 31, 2010, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 2010, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks’ December 31, 2010
Which of the following is not an objective of using present value in accounting measurements?a. To capture the value of an asset or a liability in the context of a particular entity.b. To estimate fair value.c. To capture the economic difference between sets of future cash flows.d. To capture the
Which of the following statements regarding interest methods of allocations is not true?a. The term “interest methods of allocation” refers both to the convention for periodic reporting and to the several approaches to dealing with changes in estimated future cash flows.b. Interest methods of
A cash flow of $200,000 may be received by Lydia Nickels, Inc. in one year, two years, or three years, with probabilities of 20%, 50%, and 30%, respectively. The rate of interest on default risk-free investments is 5%. The present value factors are PV of 1, at 5%, for 1 year is .95238 PV of 1, at
In calculating present value in a situation with a range of possible outcomes all discounted using the same interest rate, the expected present value would bea. The most-likely outcome.b. The maximum outcome.c. The minimum outcome.d. The sum of probability-weighted present values.
Which of the following is not covered by SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements?a. Measurements at initial recognition.b. Interest method of amortization.c. Expected cash flow approach.d. Determining when fresh-start measurements are appropriate.
According to SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements, the most relevant measurement of an entity’s liabilities at initial recognition and fresh-start measurements should always reflecta. The expectations of the entity’s management.b. Historical cost.c.
According to the FASB conceptual framework, which of the following attributes would not be used to measure inventory?a. Historical cost.b. Replacement cost.c. Net realizable value.d. Present value of future cash flows.
According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?a. The claims to an asset’s benefits are legally enforceable.b. An asset is tangible.c. An asset is obtained at a cost.d. An asset provides future benefits.
According to the FASB conceptual framework, an entity’s revenue may result froma. A decrease in an asset from primary operations.b. An increase in an asset from incidental transactions.c. An increase in a liability from incidental transactions.d. A decrease in a liability from primary operations.
FASB’s conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?Currently reported net income Comprehensive incomea. Financial capital
What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies?a. Conservatism.b. Relevance.c. Consistency.d. Faithful representation.
What is the underlying concept that supports the immediate recognition of a contingent loss?a. Substance over form.b. Consistency.c. Matching.d. Conservatism.
According to the FASB conceptual framework, which of the following statements conforms to the realization concept?a. Equipment depreciation was assigned to a production department and then to product unit costs.b. Depreciated equipment was sold in exchange for a note receivable.c. Cash was
The fundamental qualitative characteristic of faithful representation has the components ofa. Predictive value and confirmatory value.b. Comparability, consistency, and confirmatory value.c. Understandability, predictive value, and reliability.d. Completeness, neutrality, and freedom from error.
Under FASB Statement of Financial Accounting Concepts 5, comprehensive income excludes changes in equity resulting from which of the following?a. Loss from discontinued operations.b. Prior period error correction.c. Dividends paid to stockholders.d. Unrealized loss on securities classified as
Under FASB Statement of Financial Accounting Concepts 5, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?a. Unrealized loss on investments classified as available-for-sale
According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity isa. Allocation.b. Matching.c. Realization.d. Recognition.
According to the FASB conceptual framework, which of the following is an enhancing quality that relates to both relevance and faithful representation?a. Comparability.b. Confirmatory value.c. Predictive value.d. Freedom from error.
According to Statements of Financial Accounting Concepts, neutrality is an ingredient of Faithful representation Relevancea. Yes Yesb. Yes Noc. No Yesd. No No
The enhancing qualitative characteristics of financial reporting area. Relevance, reliability, and faithful representation.b. Cost-benefit and materiality.c. Comparability, verifiability, timeliness, and understandability.d. Completeness, neutrality, and freedom from error.
According to the FASB conceptual framework, the relevance of providing information in financial statements is subject to the constraint ofa. Comparability.b. Cost-benefit.c. Reliability.d. Faithful representation.
According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based ona. Generally accepted accounting principles.b. Reporting for regulators.c. The need for conservatism.d. The needs of the users of the information.
What are the Statements of Financial Accounting Concepts intended to establish?a. Generally accepted accounting principles in financial reporting by business enterprises.b. The meaning of “Present fairly in accordance with generally accepted accounting principles.”c. The objectives and concepts
An entity has the following invoices in a batch:Invoice # Product Quantity Unit price 201 F10 150 $ 5.00 202 G15 200 $10.00 203 H20 250 $25.00 204 K35 300 $30.00 Which of the following numbers represents the record count?a. 1b. 4c. 810d. 900
An auditor most likely would test for the presence of unauthorized computer program changes by running aa. Program with test data.b. Check digit verification program.c. Source code comparison program.d. Program that computes control totals.
Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer file contains name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow
Auditors often make use of computer programs that perform routine processing functions such as sorting and merging. These programs are made available by electronic data processing companies and others and are specifically referred to asa. Compiler programs.b. Supervisory programs.c. Utility
A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor maya. Access information stored on computer files while having a limited understanding of the client’s hardware and software features.b.
An auditor would least likely use computer software toa. Access client data files.b. Prepare spreadsheets.c. Assess computer control risk.d. Construct parallel simulations.
Using microcomputers in auditing may affect the methods used to review the work of staff assistants becausea. The audit fieldwork standards for supervision may differ.b. Documenting the supervisory review may require assistance of consulting services personnel.c. Supervisory personnel may not have
In creating lead schedules for an audit engagement, a CPA often uses automated workpaper software. What client information is needed to begin this process?a. Interim financial information such as third quarter sales, net income, and inventory and receivables balances.b. Specialized journal
Which of the following methods of testing application controls utilizes a generalized audit software package prepared by the auditors?a. Parallel simulation.b. Integrated testing facility approach.c. Test data approach.d. Exception report tests.
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.
Which of the following is not among the errors that an auditor might include in the test data when auditing a client’s computer system?a. Numeric characters in alphanumeric fields.b. Authorized code.c. Differences in description of units of measure.d. Illogical entries in fields whose logic is
When an auditor tests a computerized accounting system, which of the following is true of the test data approach?a. Several transactions of each type must be tested.b. Test data are processed by the client’s computer programs under the auditor’s control.c. Test data must consist of all possible
An auditor most likely would introduce test data into a computerized payroll system to test controls related to thea. Existence of unclaimed payroll checks held by supervisors.b. Early cashing of payroll checks by employees.c. Discovery of invalid employee I.D. numbers.d. Proper approval of
To obtain evidence that online access controls are properly functioning, an auditor most likely woulda. Create checkpoints at periodic intervals after live data processing to test for unauthorized use of the system.b. Examine the transaction log to discover whether any transactions were lost or
Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor’s control to test controls in the computer system?a. Test data.b. Review of program logic.c. Integrated test facility.d. Parallel simulation.
An auditor who wishes to capture an entity’s data as transactions are processed and continuously test the entity’s computerized information system most likely would use which of the following techniques?a. Snapshot application.b. Embedded audit module.c. Integrated data check.d. Test data
Which of the following client information technology(IT) systems generally can be audited without examining or directly testing the IT computer programs of the system?a. A system that performs relatively uncomplicated processes and produces detailed output.b. A system that affects a number of
Auditing by testing the input and output of a computer system instead of the computer program itself willa. Not detect program errors which do not show up in the output sampled.b. Detect all program errors, regardless of the nature of the output.c. Provide the auditor with the same type of evidence
After the preliminary phase of the review of a client’s computer controls, an auditor may decide not to perform tests of controls related to the controls within the computer portion of the client’s internal control. Which of the following would not be a valid reason for choosing to omit such
An auditor anticipates assessing control risk at a low level in a computerized environment. Under these circumstances, on which of the following activities would the auditor initially focus?a. Programmed control activities.b. Application control activities.c. Output control activities.d. General
Which of the following types of evidence would an auditor most likely examine to determine whether internal control is operating as designed?a. Gross margin information regarding the client’s industry.b. Confirmations of receivables verifying account balances.c. Client records documenting the use
An auditor would most likely be concerned with which of the following controls in a distributed data processing system?a. Hardware controls.b. Systems documentation controls.c. Access controls.d. Disaster recovery controls.
Computer systems are typically supported by a variety of utility software packages that are important to an auditor because theya. May enable unauthorized changes to data files if not properly controlled.b. Are very versatile programs that can be used on hardware of many manufacturers.c. May be
Which of the following is not a major reason for maintaining an audit trail for a computer system?a. Deterrent to fraud.b. Monitoring purposes.c. Analytical procedures.d. Query answering.
Which of the following strategies would a CPA most likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?a. Continuous monitoring and analysis of transaction processing with an embedded audit module.b. Increased reliance
Which of the following is least likely to be considered by an auditor considering engagement of an information technology (IT) specialist on an audit?a. Complexity of client’s systems and IT controls.b. Requirements to assess going concern status.c. Client’s use of emerging technologies.d.
In a highly automated information processing system tests of controla. Must be performed in all circumstances.b. May be required in some circumstances.c. Are never required.d. Are required in first year audits.
An auditor would be most likely to assess control risk at the maximum level in an electronic environment with automated system-generated information whena. Sales orders are initiated using predetermined, automated decision rules.b. Payables are based on many transactions and large in dollar
Which of the following is correct concerning batch processing of transactions?a. Transactions are processed in the order they occur, regardless of type.b. It has largely been replaced by online real-time processing in all but legacy systems.c. It is more likely to result in an easy-to-follow audit
Matthews Corp. has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer system automatically updates all payroll records. Because of this changea. A generalized computer audit
A flowchart is most frequently used by an auditor in connection with thea. Preparation of generalized computer audit programs.b. Review of the client’s internal control.c. Use of statistical sampling in performing an audit.d. Performance of analytical procedures of account balances.
An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowchartsa. Identify internal control weaknesses more prominently.b. Provide a visual depiction of clients’ activities.c. Indicate whether
Which of the following most likely would be an advantage in using classical variables sampling rather than probability-proportional-to-size (PPS) sampling?a. An estimate of the standard deviation of the population’s recorded amounts is not required.b. The auditor rarely needs the assistance of a
Which of the following statements is correct concerning the auditor’s use of statistical sampling?a. An auditor needs to estimate the dollar amount of the standard deviation of the population to use classical variables sampling.b. An assumption of PPS sampling is that the underlying accounting
The major reason that the difference and ratio estimation methods would be expected to produce audit efficiency is that thea. Number of members of the populations of differences or ratios is smaller than the number of members of the population of book values.b. Beta risk may be completely
An auditor is performing substantive tests of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?a. Unstratified
Use of the ratio estimation sampling technique to estimated dollar amounts is inappropriate whena. The total book value is known and corresponds to the sum of all the individual book values.b. A book value for each sample item is unknown.c. There are some observed differences between audited values
Using statistical sampling to assist in verifying the yearend accounts payable balance, an auditor has accumulated the following data:Balance Number of Book determined by accounts balance the auditor Population 4,100 $5,000,000 ?Sample 200 $ 250,000 $300,000 Using the ratio estimation technique,
In the application of statistical techniques to the estimation of dollar amounts, a preliminary sample is usually taken primarily for the purpose of estimating the populationa. Variability.b. Mode.c. Range.d. Median.
The use of the ratio estimation sampling technique is most effective whena. The calculated audit amounts are approximately proportional to the client’s book amounts.b. A relatively small number of differences exist in the population.c. Estimating populations whose records consist of quantities,
In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups ifa. Probability-proportional-to-size (PPS) sampling is used.b. The population has highly variable recorded amounts.c. The auditor’s estimated tolerable
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