Question

1. One of the main advantages of the globalization of accounting standards is:

1. Increased flexibility in financial reporting
2. The production of prudent financial statements.
3. The use of creative accounting practices.
4. Comparability between accounting periods and between entities.

2.      The CORRECT data flow from one financial statement to the next is:

1. statement of retained earnings, income statement, balance sheet, statement of cash flows
2. balance sheet, statement of retained earnings, income statement, statement of cash flows
3. statement of retained earnings, income statement, statement of cash flows, balance sheet
4. income statement, statement of retained earnings, balance sheet, statement of cash flows

3.     A company’s main source of cash should be:

1. Operating activities
2. Financing activities
3. Investing activities
4. All of the above

4.      On December 15, 2018, a company receives an order from a customer for services to be performed on December 28, 2018. Due to a backlog of orders, the company does not perform the services until January 3, 2019. The customer pays for the services on January 6, 2019. The revenue principle requires the revenue to be recorded by the company on:

1. December 15, 2018
2. January 3, 2019
3. December 28, 2018
4. January 6, 2019

5.     The expense recognition principle requires the recognition of expenses:

1. In the same period in which the related revenues are earned.
2. In the period they are paid.
3. In the period the assets are created.
4. In the period in which future benefit for the company occurs.

6.     A difference may arise between the accounting treatment of an item and its tax treatment because:

A.    the tax treatment follows cash flow principles and the accounting treatment follows accrual principles

B.    the accounting treatment follows accounting concepts while the tax treatment is based on GAAP.

C.    The tax treatment follows accrual principles and the accounting treatment focuses on cash flows.

D.    Accountants are not obligated to follow any rules when preparing a company’s tax return.

7.     Positive signs of a successful company as seen on the statement of cash flows do NOT include:

1. investments in property, plant and equipment
2. operating activities are the largest source of cash
3. banks are willing to lend money to the company.
4. the sale of a majority of a company’s plant assets.

8.     Contingency fee-based pricing of services to clients is:

1. Always strictly prohibited in public accounting practice.
2. Never restricted in public accounting practice.
3. Prohibited for clients for whom attestation services are provided.
4. Considered an act discreditable to the profession.

9.      Assume that a CPA firm was negligent but not grossly negligent in the performance of an audit engagement. Which of the following plaintiffs probably would not recover losses proximately caused by the auditors’ negligence?

1. A loss sustained by a client in a suit brought under common law.
2. A loss sustained by a lender not in privity of contract in a suit brought in a state court which adheres to the Ultramares v. Touche precedent.
3. A loss sustained by initial purchasers of stock in a suit brought under Securities Act of 1933.
4. A loss sustained by a bank named as a third-party beneficiary in the engagement letter in a suit brought under common law.

10.    Assertions that have a meaningful bearing on whether an account balance, transaction class or disclosure is fairly stated are referred to as:

1. Appropriate assertions
2. Sufficient assertions.
3. Relevant assertions.
4. Reliable assertions.

11.    During financial statement audits, auditors seek to restrict which type of risk?

1. Control risk.
2. Detection risk.
3. Inherent risk.
4. Account risk.

12.    Which of the following statements is correct regarding the auditor’s determination of materiality?

1. The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement.
2. The auditors’ planning level of materiality may be disaggregated to smaller tolerable misstatements for the various accounts.
3. Auditors may use various rules of thumb to arrive at an evaluation

level of materiality, but not for determining the planning level of materiality.

4. The amount used for the planning should equal that used for evaluation.

13.    Which of the following factors would most likely be considered as inherent limitation in an entity’s system of internal control over financial reporting?

1. The complexity of the information processing system.
2. Human judgment in the decision making process.
3. The ineffectiveness of the board of directors.
4. The lack of management incentives to improve the control environment.

14.    A client has changed the estimated salvage values of a number of its fixed assets. The auditors believe that the revised values are realistic. The appropriate report on the financial statements is:

1. Unmodified
2. Unmodified with explanatory language as to consistency.
3. Qualified for consistency.
4. Disclaimer.

15.    Answer one or the other question but not both.

For 2017, the difference between adjusted gross income and taxable income will depend on:

1. The standard deduction or itemized deductions.
2. Personal exemptions, itemized deductions and tax credits.
3. Only personal exemptions.

      D. Personal exemptions and the standard deduction or itemized deductions.

For 2018, the difference between adjusted gross income and taxable income will depend on:

1. The standard deduction or itemized deductions.
2. Personal exemptions, itemized deductions and tax credits.
3. Only personal exemptions.
4. Personal exemptions and the standard deduction or itemized deductions.

16.    In an S corporation, shareholders

1. Are only taxed on salaries.
2. May allocate income among themselves in order to consider special contributions.
3. Are taxed on the proportionate share of earnings.
4. Are taxed only on dividends.

17.    The term “tax law” includes

1. Internal Revenue Code
2. Judicial decisions
3. Treasury regulations
4. All of the above.

18.    Which of the following serves as the highest authority for tax research, planning, and compliance activities?

1. Internal Revenue Code
2. Revenue Rulings
3. Revenue Procedures
4. Income Tax Regulations.

19.    Which of the following is TRUE?

1. Married couples living apart cannot file joint returns.
2. A head-of-household must be a widow or widower.
3. An abandoned spouse meeting certain conditions may file as a head-of-household.
4. A widow generally cannot file a joint return for the year of her husband's death.

20.    Married couples will normally file jointly. Identify a situation where a married couple may prefer to file separately.

1. A couple is separated and contemplating divorce.
2. The spouse with the lower income has a substantial medical expenses.
3. One spouse can be held responsible for the entire tax liability.
4. All of the above.

21.       Which of the following is NOT excluded from income?

1. Gifts and inheritances
2. Public assistance payments.
3. Fair market value of a prize won on a game show
4. Life insurance proceeds paid by reason of death.

Answer 1

Answers to the above mentioned questions is below :

1. One of the main advantages of the globalization of accounting standards is:

A. Increased flexibility in financial reporting
B. The production of prudent financial statements.
C. The use of creative accounting practices.
D. Comparability between accounting periods and between entities.

The correct answer is OPTION A i.e Increased flexibility in financial reporting.

As globalization of accounting standards provides the accounting standards to be flexible so that everyone can use them easily and understand them.

2. The CORRECT data flow from one financial statement to the next is:

A. statement of retained earnings, income statement, balance sheet, statement of cash flows
B. balance sheet, statement of retained earnings, income statement, statement of cash flows
C. statement of retained earnings, income statement, statement of cash flows, balance sheet
D. income statement, statement of retained earnings, balance sheet, statement of cash flows.

The correct answer is OPTION C i.e statement of retained earnings, income statement, statement of cash flows, balance sheet.

As this is the correct flow in which the statements of any organisation should be prepared.

3. A company’s main source of cash should be:

A. Operating activities
B. Financing activities
C. Investing activities
D. All of the above

The correct answer is OPTION A i.e
Operating activities.

As revenue from operating activities shows the company's real earnings from the business. It consists of all the activities which the company performs on daily basis.

4. On December 15, 2018, a company receives an order from a customer for services to be performed on December 28, 2018. Due to a backlog of orders, the company does not perform the services until January 3, 2019. The customer pays for the services on January 6, 2019. The revenue principle requires the revenue to be recorded by the company on:

A. December 15, 2018
B. January 3, 2019
C. December 28, 2018
D. January 6, 2019

The correct answer is OPTION D i.e January 6, 2019

As the date of providing services can only be the date when such revenues from services. As required by the revenue recognition principle that any income can be considered only after it becomes sure to receive such income.