During Year 2, Mason Company's current assets increased by USD120,000, current liabilities decreased by USD50,000 and net working capital:
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1 .Which of the following statements is correct regarding an accountant's working papers?
A The client owns the working papers but the accountant has custody of them until the accountant's bill is paid in full. B The accountant owns the working papers and generally may disclose them as the accountant sees fit. C The accountant owns the working papers but generally may not disclose them w...
2 .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.
3 .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?
A Lack of privity. B Lack of scienter. C Contributory negligence on the part of the client. D A disclaimer contained in the engagement letter.
4 .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.
5 .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.
7 .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.
8 .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.
9 .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.
10 .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.
