- Bots are more creative than humans
- Bots do not need to take time off
- Bots improve efficiency
- Bots can eliminate human errors
- A contra asset is not an accounting term
- A contra asset has a credit balance and therefore a negative effect on total assets
- A contra asset with a positive balance will increase overall liabilities
- A contra asset has a debit balance and therefore a positive effect on total assets
Q3. Internal controls may be preventative, detective, corrective, or directive. Which is a detective control?
- data backups
- physical inventory check
- employee background checks
- physical locks on inventory warehouse
Q4. On March 15, a business received an invoice from the power company for utilities used in February. The retailer paid the invoice on April 1. The business uses accrual-based accounting. Which month should the business recognize the expense?
- April
- March
- no record required
- February
Q5. Which choice is a general guideline for adequate separation of duties to prevent both fraud and error?
- A person who has control over an asset should not safeguard that asset.
- A person who has temporary or permanent custody of an asset should not account for that asset.
- A person who has record-keeping responsibility should not make journal entries.
- A person who has operational responsibility should not authorize transactions for the area.
- direct materials, direct and indirect labor, and fixed overhead
- direct materials, indirect labor, and variable and fixed overhead
- direct materials, direct labor, and both variable and fixed overhead
- direct materials, direct and indirect labor, and variable overhead
- Accruals are past cash receipts and payments, while deferrals are expected future cash receipts and payments.
- Both accruals and deferrals are both expected future cash receipts and payments.
- Accruals are expected future cash receipts and payments, while deferrals are past cash receipts and payments.
- Both accruals and deferrals are not expected past cash receipts and payments.
Q8. What do you call a situation where more than one person collaborates to circumvent existing internal controls?
- assigned responsibility
- segregation of duties
- fraud prevention
- collusion
- review of manufacturing plan
- segregation of duties
- bank reconciliations
- approval process
[source] 'MT: bank recons are internal control, checking to see if figures match. Approval by different level of authorities help to prevent unauthorized transactions - so it is a control too. segregate duties also ensures that.
- zero-based budgeting
- master budgeting
- rolling budgets
- bottom-up budgeting
- disposal of a major product line or major geographical area of operations
- sale of unused or obsolete equipment and discontinued inventory
- plant shutdown or decommissioning of a facility
- net income or loss for products completed and sold
Q12. How are the three financial statements (income statement, balance sheet, and cash flow statement) linked?
- Only the assets are reflected in the cash flow statement, and the net income expenses correlate with the liabilities.
- The net income goes to retained earnings, but the cash flow remains independent.
- The gross profit goes to retained earnings, and the shareholder equity total is added to the cash flow statement
- The net income goes to the retained earnings and the cash flow statement
[source]'MT: odd qns. But it should be net profit "npat" flows to retained earnings, and also starts the cashflow statement (so all linked and not independent). Assets are in the balance sheet, and net income is in the income statement. npat goes to retained earnings, not gross profit.
- internal business
- learning and growth
- quantitative
- customer
- deposits in transit
- bank service fees
- outstanding checks
- electronic fund transfers/payments
Q15. What situation could be the result of the three retail store employees sharing the same cash register?
- a thorough internal control activity
- a violation of assignment of responsibility
- a violation of segregation of duties
- a support process to avoid fraud
- 3
- 2
- 0.5
- 0.33
- all attestation services
- all professional services (wrong and, includes consulting)
- all tax services
- all consulting engagements (wrong answer)
Reference
'MT: tough qns, ambiguous options. Attest = validate audit data gathered. Consulting is less regulatory/ restrictive, = how to increase pie sales, versus audit/attestation = why you reported more pies in your fridge than we observed. Tax is grey, usually has to be internal audit committee approved or fees disclosed, etc. but there are exceptions.'
- custody, payment, and recording
- authorization, custody, and execution
- authorization, custody, and recording
- custody, execution, and payment
- how much the value of capital assets will change in response to a change in sales
- how much the operating income of a company will change in response to a change in sales
- the valuation of assets to determine how much additional debt the company can borrow
- how much the sales of a company will change in response to a change in operating income
[Reference]' High operating leverage means a firm has a relatively fixed, and usually high cost base. So additional sales would incrementally drive more profits because those sales do not need to incur more costs to generate (like a factory, versus factory workers)'
Q20. Which characteristic would concern an auditor about the risk of material misstatements arising from fraudulent financial reporting?
- limited employee turnover within the accounting and finance department
- management's disregard of regulations and regulatory authorities
- regularly reported bank reconciliations, including deposits in transit
- capital assets sold at a loss before being depreciated fully
[source]'MT: regular bank recons and loyal employees are +ve. Nothing wrong with assets sold at a loss before fully depreciated, like you can sell a plane at a loss even before it has been "fully used".
Q21. An employee who makes a sale, ships the goods, and bills the customer violates which control activity?
- assignment of responsibility
- audit verification
- segregation of duties
- review and reconciliation
- The auditor can interpret accounting principles applicable to the country in which the client operates.
- The auditor has extensive education beyond what is required for an accountant
- The auditor can adapt to a rapidly changing profession.
- The auditor has expertise in the gathering and interpretation of audit evidence.
[source]' MT: auditors are focused on gathering and interpreting audit evidence in specific sectors. Both auditors and accountants would be familiar with the principles that the client operates in'
- assessing the company's compliance with environmental laws and regulations
- evaluating whether the organization is meeting the metrics set by management to achieve the goals and objectives set forth by the board of directors
- assessing the organization's control mechanisms for overall efficiency and reliability
- evaluating compliance with applicable laws, regulations, policies, and procedures
- The balanced scorecard aligns an organization's operational activities with its mission.
- The balanced scorecard focuses on four primary areas: financial, customer, internal process, and learning and growth. (def true)
- The balanced scorecard measures, tracks, and reports on a balance of qualitative and financial data and metrics. (def true)
- The balanced scorecard ensures the organization's profitability aligns with director compensation and dividend expectations.
Reference
'MT: BSC is on improving efficiency - deliver goals and how to measure that quantitatively or qualitatively. Nothing to do with how to compensate'
- information and communication
- risk mitigation
- monitoring
- control environment
Q26. What is the difference between the cost of an asset and the accumulated depreciation for that asset?
- depreciation value
- prepaid asset
- depreciation expense
- book value
Q27. A company budgeted 1,200 washers, but only 1,000 are produced. It costs $10 to produce a widget. What is the material variance?
- 200
- 2000
- 350
- 20
- external auditors
- senior management
- board of directors
- union of employee representatives
Q29. A business purchased office equipment by issuing a one-year note payable. The entire amount of the note is due at the end of one year. How do you record this transaction?
- Debt asset, credit equity
- Debt liability, credit asset.
- Debit asset, credit liability
- Debit equity, credit asset.
[source]' MT answer - it's Debit equipment (asset), Credit notes payable (liability). To +/- assets, need to dr/cr, inverse is true for liabilities. A long-form journal entry is: Borrow cash - Dr cash, Cr notes payable, then for equipment purchase - Dr equipment, Cr cash'
- Notes to the financial statements
- An auditor's report
- Listing of the stockholders
- Management discussion and analysis
- being an advocate for all clients
- not being dependent on a client's fee
- having only indirect financial interests in the auditee
- taking an unbiased viewpoint
- collecting a note receivable
- paying a note payable
- NSF checks ("nonsufficient funds")
- service changes
[source]' MT: depositor account os a liability to the bank - bank owes the money to the depositor. bank collects notes receivable from clients means reducing clients' cash/ deposits. Similarly, if NSF means the cheque owner does not have enough funds to transfer funds into the client's deposits, there no change in deposits.'
- Current liabilities are obligations owed after 12 months.
- Current liabilities should be included under long-term liabilities.
- Current liabilities are obligations owed over 5 years.
- Current liabilities are obligations due within a year.
Reference
Current liabilities are a company's short-term financial obligations that are due within one year or a normal operating cycle.
- Variable costs per unit remain constant and fixed costs per unit vary.
- Fixed costs per unit remain constant and variable costs per unit vary.
- Both total variable costs and total fixed costs vary.
- Both total variable costs and total fixed costs remain constant.
Reference
While variable costs tend to remain flat, the impact of fixed costs on a company's bottom line can change based on the number of products it produces.
Q35. Which answer can be defined as an investment center's contribution margin less the fixed costs that are traceable to the investment center?
- net income
- residual income
- segment margin
- return on investment (ROI)
Reference
Contribution Margin = Sales Revenue – Variable Costs
Segment Margin = Segment’s Contribution Margin – Fixed Costs traced to the Segment
Q36. If an auditor is expected to detect the overstatement of sales, what should the auditor trace transactions from?
- customer purchase orders to the sales journal
- cash receipts to the purchase orders
- sales journal to the shipping documents
- shipping documents to the cash receipts
Reference
Which audit procedure is most effective in testing credit sales for overstatement?
Vouch a sample recorded sales from the sales journal to shipping documents.
Q37. What is the formal method of analysis applied by management to identify appropriate cost drivers and effects on the costs of production?
- profitability analysis
- cost-benefit analysis
- life-cycle costing
- activity analysis
[Reference]Activity analysis involves studying and evaluating the activities and processes within an organization to understand their cost implications. It helps in identifying the key activities that drive costs and analyzing their relationship with various cost drivers. By understanding these relationships, management can make informed decisions to optimize costs and improve overall efficiency.
Q38. When independent auditors can maintain their actual independence, it is referred to as independence in ____.
- fact
- Appearance
- totality
- trust
Reference
In Accounting Series Release no. 269, the SEC defined independence in fact and independence in appearance as separate but equally necessary factors in establishing the auditor’s objectivity and integrity when certifying financial statements filed with the commission by an issuer of securities. Few would debate that independence in fact—that is, that the auditor is unbiased—is essential to the validity of an audit.
Q39. When applying a cost-volume-profit analysis (CVP), certain assumptions must be respected. Which answer is not one of these assumptions?
- The unit sales price will remain constant.
- Actual unit variable cost will vary over the production range.
- The cost behavior is expressed as intersecting straight lines.
- The unit fixed cost will decrease.
CVP assumes the following:
- Constant sales price;
- Constant variable cost
- Constant total fixed cost
- Units sold equal units produced.
These are simplifying, largely linearizing assumptions, which are often implicitly assumed in elementary discussions of costs and profits.
- FIFO cost of goods sold will be the same as in a periodic inventory system.
- Average costs are based entirely on unit cost simple averages.
- LIFO cost of goods sold will be the same as in a periodic inventory system.
- A new average is calculated under the average cost method after each sale.
I'm not 100% sure on this.
Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.
- an electric car producer
- a wood milling company
- a beverage manufacturer
- a law firm specializing in injury law
Since lawyers and accountants work with different clients on unique accounts, many will use a job order costing system to track how much time and resources were used for each customer.
- allocating to manufacturing overhead account
- using the manufacturing cost incurred
- applying a predetermined overhead rate
- applying indirect costs to work in the process
I'm not 100% sure on this.
Indirect cost rate calculations can be determined by dividing an indirect cost by a cost object, such as sales revenues or square footage.
- compilation
- network installation
- audit
- review
- direct materials cost + administration cost
- direct materials cost + manufacturing overhead cost
- direct materials cost + marketing cost
- direct labor cost + manufacturing overhead cost
Q45. Under a perpetual inventory system, merchandise is purchased on account. What is the correct journal entry for this purchase?
- Debit merchandise inventory. credit accounts payable.
- Debit purchases, credit cash.
- Debit purchase returns, credit cost of goods sold.
- Debit merchandise inventory, credit cash.
- applying an activity rate for each cost pool
- identifying specific cost drivers
- appropriately allocating overhead costs to cost pools
- applying a single cost rate across processes
- Net income is higher for absorption costing than for variable costing.
- Net income is identical for absorption costing and for variable costing.
- There's no relationship between net income and the costing approach.
- Net income is lower for absorption costing than for variable costing.
Q48. When independent auditors can maintain their actual independence, it is referred to as independence in__.
- trust
- totality
- Appearance
- fact
Q49. What is the formal method of analysis applied by management to identify appropriate cost drivers and effects on the costs of production?
- cost-benefit analysis
- life-cycle costing
- profitability analysis
- activity analysis
- when the costs are easily traced to a specific product
- when costs are accumulated by the department
- when the value of work in process is based on assigning standard costs
- when each product batch is the same as the prior batch
Q51. Robinson Hotels is trying to predict its utility costs. It has five years of data, including monthly utility costs, monthly occupancy rates, and average monthly temperature. What tool or technique can Robinson Hotels use to predict or estimate its future utility costs?
- segment report
- regression analysis
- time series analysis
- net present value
- the current value of the inventory
- the number of times inventory was sold during the period
- how it compares with the industry average
- whether the company can maintain the same inventory levels compared to industry averages
Q53. The company earned a gross profit of $4,000,000 and had net sales of $12,000,000. What is the gross margin and what does the result imply to the reviewer?
- The 3.33% gross margin represents for every dollar in sales, the company spends $0.9667 to produce the product sold.
- The question does not provide sufficient information to offer a proper calculation.
- The 3.33% gross margin represents for every dollar in sales, the company spends $0.0667 to produce the product sold.
- The 3.33% gross margin represents for every dollar in sales, the company spends $0.0333 to produce the product sold.
- conversion cost
- indirect cost
- variable cost
- fixed cost
- opportunity cost
- indirect cost
- sunk cost
- differential cost
Q56. The actual price of a widget is $10 and the budgeted price is $7. What is the price variance for 1,000 widgets?
- $3,000
- $1,000
- $3
- $1,700
Actual Cost = $10 per widget Budgeted Cost = $7 per widget Quantity = 1,000 widgets
Price Variance = (Actual Cost - Budgeted Cost) x Quantity Price Variance = ($10 - $7) x 1,000 Price Variance = $3 x 1,000 Price Variance = $3,000
Therefore, the price variance for 1,000 widgets is $3,000.
- the metric system
- TREE
- GAAP
- IFRS
- oral evidence
- physical examination
- Confirmation
- documentary evidence
- cash flow statement
- income statement
- balance sheet
- shareholder equity statement
Q60. The cost of alternative X is $25,000 and the cost of alternative Y is $20,000. What do you call the $5,000 cost difference?
- essential cost
- additional cost
- differential cost
- sunk cost
- to demonstrate to management the level of sales the company will achieve
- to provide shareholders and the board of directors confidence in management's abilities
- to allow management to compile all of the other operational budgets once they are completed
- to provide management with a high-level overview of the company finances and be a central planning tool
- An internal control system is not effective until human error is eliminated or migrated.
- Any internal control activities evaluated and adopted by a company should never be evaluated in terms of cost-benefit.
- Only mid-to-large-sized companies and governmental organizations need to ensure proper internal control activities.
- An internal control system helps a company achieve reliable financial reporting, effective and efficient operations, and compliance with laws and regulations.
Q63. According to the cost formula Y = $20,000 + $4x, what would be the total cost at an activity level of 15,000 units?
- $60,000
- $20,000
- $35,000
- $80,000
Q64. A company can change to a new accounting principle if management can justify that the change will result in what?
- more relevant decision-making information
- lower net income to report for tax purposes
- changing depreciation methods for higher net income
- reduced potential for administrative error
- cost of scrap
- training for assembly line workers
- patent cost for new product
- customer returns of defective products
- oral evidence
- physical examination
- Confirmation
- documentary evidence
- Confirm whether probable legal action is disclosed to the auditor.
- Investigate whether liens on assets are committed as collateral.
- Determine the client's planned and imminent purchase commitments.
- Gain a clear and proper understanding of the client's internal control processes.
Q68. At McKay Company, machine hours are limited. Due to limited machine hours,there is more demand for McKay's products than it can produce . To maximize profits, the company should evaluate each product's _.
- contribution margin per unit
- segment margin per unit
- gross profit per unit
- contribution margin per machine hour
To determine the contribution margin per machine hour, the contribution margin for a product is divided by the number of machine hours required to produce that product. This calculation results in the amount of contribution margin earned for each machine hour used.
- when the company must decide to purchase assets and what investment is required
- how much of a company's assets are financed by creditors
- how often a company must replace existing assets and equipment
- how efficiently a company uses its assets to generate revenue
- indirect
- fixed
- variable
- direct
Q71. Which value chain element is associated with the cost of staffing a customer support phone line?
- production and purchases
- distribution
- design
- customer service
- changes in activity levels affect predicted revenue and costs
- management needs to make changes to budget targets following poor performance
- an inaccurate operational budget results from poor budgeting data
- current results fully align with budgetary allocations
- opportunity cost
- previous cost
- sunk cost
- variable cost
Q74. Which factor is most likely to increase an auditor's awareness of possible fraudulent financial reporting?
- management's complete disclosure of unresolved legal action
- limited competition in the company's industry resulting in increasing profitability
- the audit committee's approval of specific accounting methods and principles
- year-end financial adjustments significantly impacting the financial results
Q75. Which step of the accounting cycle involves checking to see if total debits equal total credits?
- normal balances on the ledgers
- closing entries
- post-closing trial balance
- preparation of the trial balance