Cash Co. is seeking to establish better controls over its cash receipts. As part of its strategy, the company establishes a single bank as its central depository. This technique is known as:
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1 .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.
2 .The Stewart Co. uses the Economic Order Quantity (EOQ) model for inventory management. A decrease in which one of the following variables would increase the EOQ?
A Safety stock level. B Carrying costs. C Cost per order. D Quantity demanded.
3 .An accountant will be liable for damages under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 only if the plaintiff proves that:
A The accountant was negligent. B The security involved was registered. C The security was part of an original issuance. D There was a material omission.
4 .Which of the following assumptions is associated with the economic order quantity formula?
A The purchase cost per unit will vary based on quantity discounts. B The carrying cost per unit will vary with quantity ordered. C The cost of placing an order will vary with quantity ordered. D Periodic demand is known.
5 .A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations?
A A letter to the client from the IRS. B An inquiry from the professional ethics division of the AICPA. C A court-ordered subpoena or summons. D A review of the CPA's professional practice by a state CPA society.
7 .An accountant's audit documentation, created by an accountant when performing an audit for a client, is owned by:
A The accountant only. B Neither the accountant nor the client. C The accountant and the client jointly. D The client only.
8 .Which of the following transactions would increase the current ratio and decrease net profit?
A A long-term bond is retired before maturity at a discount. B A federal income tax payment due from the previous year is paid. C A dividend is paid. D Vacant land is sold for less than the net book value.
9 .Which of the following pairs of elements must a client prove to hold an accountant liable for common law negligence?
A Scienter and a violation of GAAP. B Breach of the accountant's duty of care and loss. C Freedom from contributory negligence and privity. D Willful misrepresentation and breach of the accountant's duty of care.
10 .A company has equity of USD9,000. Long-term debt is USD1,900. Net working capital, other than cash, is USD2,500. Fixed assets are USD2,200. What amount of cash does the company have?
A USD6,200 B USD6,800 C USD7,400 D USD2,400
