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Download DemoVendor: AICPA
Certifications: AICPA Certifications
Exam Code: CPA-TEST
Exam Name: Certified Public Accountant Test: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, Regulation
Updated: Nov 29, 2024
Q&As: 1241
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An auditor most likely would apply analytical procedures in the overall review stage of an audit to:
A. Enhance the auditor's understanding of subsequent events.
B. Identify auditing procedures omitted by the staff accountants.
C. Determine whether additional audit evidence may be needed.
D. Evaluate the effectiveness of the internal control activities.
Correct Answer: C
Explanation: Choice "c" is correct. In performing analytical procedures as an overall review, the auditor determines whether adequate evidence has been gathered in response to unusual or unexpected balances identified during the audit, and may decide that additional audit procedures are warranted. In addition, the auditor may identify unusual or unexpected balances not already noted during the audit, which would also require the application of further auditing procedures. Choice "a" is incorrect. Analytical procedures applied during the overall review stage of the audit are meant to evaluate the overall financial statement presentation, and to assess the conclusions reached by the auditor. This is a high-level review, and one that focuses on the financial statements. As such, it would not be likely to enhance the auditor's understanding of subsequent events. Choice "b" is incorrect. Analytical procedures applied during the overall review stage of the audit are meant to evaluate the overall financial statement presentation, and to assess the conclusions reached by the auditor. This is a high-level review, and one that focuses on the financial statements. As such, it would not be likely to identify omitted auditing procedures. Choice "d" is incorrect. Analytical procedures applied during the overall review stage of the audit are meant to evaluate the overall financial statement presentation, and to assess the conclusions reached by the auditor. This is a high-level review, and one that focuses on the financial statements. As such, it would not be useful in evaluating the effectiveness of the client's internal control activities.
An example of a carrying cost is:
A. Disruption of production schedules.
B. Quantity discounts lost.
C. Handling costs.
D. Obsolescence.
Correct Answer: D
Explanation:
Choice "d" is correct. Obsolescence is an example of a carrying cost.
Choices "a", "b", and "c" are incorrect. Carrying cost is not:
A. Disruption of production schedules.
B. Quantity discounts lost.
C. Handling costs.
On February 1, 1993, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in 1990. Fair market value of the stock on February 1, 1993, the date of his father's death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, 1993, the date that the executor distributed the stock to him. How much income should Hall include in his 1993 individual income tax return for the inheritance of the 500 shares of stock, which he received from his father's estate?
A. $5,500
B. $4,000
C. $2,500
D. $0
Correct Answer: D
Explanation: Choice "d" is correct. There is no income tax on the value of inherited property. The gain on the sale is the difference between the sales price of $4,500 and Hall's basis. Hall's basis is the alternate valuation elected by the executor. This is the value 6 months after date of death or date distributed if before 6 months. The property was distributed 4 months after death and the value that day ($4,500) is used for the basis. $4,500 − $4,500 = 0. Choice "a" is incorrect. There is no income tax on the value of inherited property. Choice "b" is incorrect. This is the basis of the stock if the alternate date had not been used. Heirs are not taxed on inheritances. The income or loss results when inherited property is sold. Choice "c" is incorrect. There is no income tax on the value of inherited property. The gain on the sale is the difference between the sales price of $4,500 and Hall's basis. Hall's basis is the alternate valuation elected by the executor.
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