Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?
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1 .Vested, Inc. made some changes in operationsand provided the following information: Year 2 Year 3 Operating revenues USD900,000 USD1,100,000 Operating expenses 650,000 700,000 Operating assets 1,200,000 2,000,000 What percentage represents the return on investment for year 3?
A 20.31% B 20% C 25% D 28.57%
2 .Which of the following statements is correct for the judicial process when a taxpayer and the Internal Revenue Service cannot reach agreement on a tax issue using the administrative appeals process?
A The U.S. Court of Federal Claims has jurisdiction over most claims for money damages against the United States. B The IRS bears the burden of proof in civil tax cases because the IRS can readily afford expensive lawyers and thus should be able to bear a greater burden. C The Supreme Court often he...
3 .Spear Corp. had sales of USD2,000,000, a profit margin of 11%, and assets of USD2,500,000. Spear decided to reduce its debt ratio to 0.40 from 0.50 by selling new common stock and using the proceeds to repay principal on some outstanding long-term debt. After the refinancing, what is Spear's return on equity?
A 5.3% B 22.9% C 14.7% D 3.5%
4 .Which of the following statements is correct regarding an accountant's working papers?
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5 .Foster Inc. is considering implementing a lock-box collection system at a cost of USD80,000 per year. Annual sales are USD90 million, and the lock-box system will reduce collection time by 3 days. If Foster can invest funds at 8 percent, should it use the lock-box system? Assume a 360-day year.
A Yes, producing savings of USD60,000 per year. B No, producing a loss of USD60,000 per year. C No, producing a loss of USD20,000 per year. D No, producing a loss of USD140,000 per year.
7 .Which of the following ratios is appropriate for the evaluation of accounts receivable?
A Current ratio. B Days sales outstanding. C Collection to debt ratio. D Return on total assets.
8 .In a common law action against an accountant, lack of privity is a viable defense if the plaintiff:
A Is the accountant's client. B Bases the action upon fraud. C Can prove the presence of gross negligence that amounts to a reckless disregard for the truth. D Is the client's creditor who sues the accountant for negligence.
9 .During Year 2, Mason Company's current assets increased by USD120,000, current liabilities decreased by USD50,000 and net working capital:
A Decreased by USD170,000. B Increased by USD70,000. C Increased by USD170,000. D Decreased by USD70,000.
10 .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 with a loan made by Mac to Queen. Beckler knew that the financial statements would be provided to Mac. Queen defaulted on the loan. Mac sued Beckler to recover for its losses associated with Queen's default. Which of the following must Mac prove in order to recover?I. Beckler was negligent in conducting the audit.II. Mac relied on the financial statements.
A Neither I nor II. B II only. C I only. D Both I and II.
