CPA-TEST Online Practice Questions and Answers

Correct Answer: C

Explanation:

Choice "c" is correct. When an auditor issues a report that is dual dated for a subsequent event occurring

after the original date of the auditor's report, the auditor's responsibility for events occurring subsequent to

the original date of the auditor's report is limited to the specific event referenced.

Choices "a", "b", and "d" are incorrect. The auditor takes responsibility for only the specific event noted in

the dual dating and for no other event occurring subsequent to the original date of the auditor's report.

Correct Answer: B

Explanation:

Choice "b" is correct. By stamping the voucher "paid," the check signer cancels the voucher so it cannot be

resubmitted for payment.

Choice "a" is incorrect. Even invoices that are supported by prenumbered sales invoices can be

resubmitted for payment if they are not canceled, resulting in duplicate payments.

Choice "c" is incorrect. Accounting for the sequence of prenumbered vouchers would only test whether all

vouchers are present. It would not prevent a voucher from being paid twice.

Choice "d" is incorrect. Proper authorization would help ensure that payments were properly authorized,

but would not prevent duplicate payments.

Correct Answer: C

Explanation:

Choice "c" is correct. Test data often contains invalid information (such as invalid job numbers) that is used

to test EDP controls.

Choices "a", "b", and "d" are incorrect. While approvals and authorizations should all be tested, they are

not IT controls and would not be tested through use of test data.

Correct Answer: B

Explanation:

Choice "b" is correct. An increase in government spending causes an increase in aggregate demand (i.e.,

causes the aggregate demand curve to shift right). As a result, an increase in government spending

causes real GDP to rise and unemployment to fall.

Choice "a" is incorrect. Real GDP will rise, not fall.

Choice "c" is incorrect. Unemployment will fall, not rise.

Choice "d" is incorrect. Real GDP will rise, not fall.

Correct Answer: D

Explanation:

Choice "d" is correct. The peak of a business cycle marks the highest point of economic activity. At that

point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on

the overall price level.

Choice "a" is incorrect. Real GDP is likely to be above, not below, its potential level.

Choice "b" is incorrect. Business inventories are likely to be low, not high, and there is likely to be excess

demand for labor not an excess supply of labor.

Choice "c" is incorrect. The overall price level is likely to be rising not falling.

Correct Answer: A

Explanation:

Choice "a" is correct. If demand is price elastic, an increase in price will result in a decline in total revenue

(negative relationship).

Choice "b" is incorrect. When demand is price elastic, an increase in price results in a decline in quantity

demanded that is proportionately larger than the increase in price, thus having the result of a decline in

total revenue (price multiplied by quantity).

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

Correct Answer: D

Explanation: Choice "d" is correct. The rule of conservatism states that revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be expensed immediately. Reporting inventory at the lower of cost or market requires the recording of a loss on inventory when market is lower than cost in the period the loss is sustained, rather than when the inventory is sold, consistent with the rule of conservatism. Choice "a" is incorrect. Because the future benefits of RandD costs are questionable, these cost should be expensed immediately, consistent with the rule of conservatism and the matching principle. Choice "b" is incorrect. The rule of conservatism only requires the accrual of "probable" losses. The accrual of a reasonably possible loss is not required and the accrual of any contingent gain, whether probable, reasonably possible, or remote, is prohibited. Choice "c" is incorrect. The reporting of marketable securities with appreciated values at market value requires the recording of a gain on the asset before the gain is realized. This contradicts the rule of conservatism, but is allowed because fair value is a more relevant measure of the value of marketable securities.

Correct Answer: A

Explanation: "A" is correct. $0. Property received by gift has two bases: one for computing gain and another for computing loss. Joan's basis for gain is the grandfather's adjusted basis ($60,000). Using this basis for gain, Joan has a loss of: $56,000 - $60,000 = ($4,000 loss). Joan's basis for loss is the fair market value of the property on the date of the gift ($50,000). Using this basis for loss, Joan has a gain of: $56,000 $50,000 = $6,000 gain. In this unusual situation, Joan has neither a gain nor a loss, although the transaction must be reported.