The principal difference between a merchandising and a manufacturing income statement is the;a. cost of goods sold section.;b. extraordinary item section.;c. operating expense section.;d. revenue section.;16. Some companies implement systems to reduce defects in finished products with the goal of achieving zero defects. What are these systems called?;a. Activity-based costing systems;b. Enterprise resource planning systems;c. Value chain systems;d. Total quality management systems;17. Which one of the following is an example of a period cost?;a. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer;b. Workers' compensation insurance on factory workers' wages allocated to the factory;c. A box cost associated with computers;d. A manager's salary for work that is done in the corporate head office;Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8/e (Boynton and Johnson);CHAPTER 4: Auditor?s Legal Liability;18. The auditor?s legal liability to third parties under common law extends to;a. all third parties for all acts of negligence.;b. all third parties for acts of fraud, select third parties for gross and ordinary negligence.;c. select third parties for fraud, gross negligence, and ordinary negligence.;d. all third parties for all acts of willful misconduct.;e. all third parties for acts of fraud and gross negligence, select third parties for ordinary negligence.;19. Auditor liability under the 1933 Securities Act extends to the;a. financial statement date.;b. auditor?s report date.;c. filing date of the registration statement.;d. effective date of the registration statement.;e. due date of the registration statement.;20. When financial statements are determined to be false or misleading, the auditor?s best defense against a plaintiff bringing suit under the 1933 Securities Act would be;a. lack of intent.;b. lack of privity.;c. contributory negligence.;d. no contest.;e. due diligence.;21. In recent years, both the volume and cost of litigation related to alleged audit deficiencies reached alarming proportions. This important trend led to the;a. Racketeer Influenced and Corrupt Organization Act.;b. Coalition to Eliminate Abusive Securities Suits.;c. Securities Act of 1993.;d. Private Securities Litigation Reform Act of 1995.;e. Securities Exchange Act of 1994.;22. An auditor may be liable to a client for breach of contract under which of the following?;a. Issues a standard audit report when he or she has not made an audit in accordance with GAAS.;b. Does not deliver the audit report by the agreed-upon date.;c. Violates the client?s confidential relationship.;d. All of the above.;e. None of the above.;Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8/e (Boynton and Johnson);CHAPTER 5: Overview of the Audit Process;23. Which one of the following assertions is not made by management in placing an item in the financial statements?;a. existence or occurrence;b. direct controls;c. rights and obligations;d. presentation and disclosure;e. completeness;24. If reported sales for 20X0 erroneously include sales that occurred in 20X1, the assertion violated on the 20X0 statements would be;a. existence or occurrence;b. completeness;c. valuation or allocation.;d. presentation and disclosure;e. rights and obligations;25. The completeness assertion would be violated if;a. fictitious sales transactions were included in accounts receivable.;b. the allowance for doubtful accounts was understated.;c. unbilled shipments had occurred during the period.;d. disclosure in the statements of pledged receivables was inadequate.;e. the balance of accounts payable was overstated.;26. For a particular assertion, control risk is the risk that;a. a material misstatement will occur in the accounting process.;b. controls will not detect a material misstatement that occurs.;c. audit procedures will fail to detect a weak control system.;d. the prescribed control procedures will not be applied uniformly.;e. an immaterial misstatement will occur in the accounting process.;27. Which one of the following reports serves as the primary communication of audit findings?;a. the auditor?s report on internal controls.;b. the auditor?s report on financial statements;c. the auditor?s report on disagreements with management.;d. the auditor?s report on significant audit adjustments.;e. the auditor?s report on consultation with other accountants.;Financial Accounting Theory and Analysis, 8/e (Schroeder, Clark, and Cathey);Chapter 1: The Development of Accounting Theory;28. Arpco. Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the accounting pronouncements are the most authoritative?;a. AIPPA Statement of Position.;b. AICPA Industry and Audit Guides.;c. FASB Statements of Financial Accounting Concepts;d. FASB Statements of Financial Accounting Standards;29. Accounting standard setting in the U.S. is;a. Done primarily by the Securities and Exchange Commission.;b. Done primarily by the private sector.;c. The responsibility of the public sector.;d. Done primarily by the International Accounting Standards Board.;30. The accounting standard-setting body whose purpose is to resolve controversial matters quickly is the;a. Emerging Issues Task Force (EITF).;b. Accounting Standards Executive Committee (AcSEC).;c. International Accounting Standards Board (IASB).;d. Cost Accounting Standards Board (CASB).;31. When establishing financial accounting standards, the FASB;a. Issues an exposure draft as a final statement.;b. Holds a public hearing usually 60 days after the discussion memorandum is released.;c. Consults only with the SEC before the statement is released.;d. Delegates responsibility to the SEC.;Financial Accounting Theory and Analysis, 8/e (Schroeder, Clark, and Cathey);Chapter 2: The Pursuit of the Conceptual Framework;32. What are the Statements of Financial Accounting Concepts intended to establish?;a. Generally accepted accounting principles in financial reporting by business enterprises.;b. The meaning of ?present fairly in accordance with generally accepted accounting principles.?;c. The objectives and concepts for use in developing standards of financial accounting and reporting.;d. The hierarchy of sources of generally accepted accounting principles.;33. According to the FASB?s conceptual framework the objectives of financial reporting for business enterprises are based on;a. Generally accepted accounting principles;b. Reporting on management?s stewardship.;c. The need for conservatism.;d. The needs of the users of the information.;34. According to the FASB?s conceptual framework which of the following relat4es to both relevance and reliability?;a. Comparability.;b. Feedback value.;c. Verifiability.;d. Timeliness.;35. According to the FASB?s conceptual framework, which of the following is an essential characteristic of an asset?;a. The claims to an asset?s benefits are legally enforceable.;b. An asset is tangible.;c. An asset is obtained at a cost.;d. An asset provides future benefits.;36. What is the purpose of information presented in notes to the financial statements?;a. To provide disclosures required by generally accepted accounting principles.;b. To correct improper presentation in the financial statements.;c. To provide recognition of amounts not included in the totals of the financial statements.;d. To present management?s responses to auditor comment;Financial Accounting Theory and Analysis, 8/e (Schroeder, Clark, and Cathey);Chapter 12: Accounting for Income Taxes;37. Temporary differences arise when expenses are deductible for tax purposes;After They Are Before They Are;Recognized in Recognized in;Financial Income Financial Income;a. No No;b. No Yes;c. Yes Yes;d. Yes No;38. Which of the following does not result in recognition of a deferred tax asset?;a. An operating loss carryforward.;b. Immediate expensing of organization costs.;c. Subscriptions revenue received in advance.;d. Receipt of municipal bond interest.;39. SFAS 109 states that a deferred tax asset shall be reduced by a valuation allowance if it is;a. Probable that some portion will not be realized.;b. Reasonably possible that some portion will not be realized.;c. More likely than not that some portion will not be realized.;d. Likely that some portion will not be realized.;40. Because Jsb Co. uses different methods to depreciate equipment for financial statement and income tax purposes, Jab has temporary differences that will reverse during the next year and add to taxable income. Deferred income taxes that are based on these temporary differences should be classified in Jab?s balance sheet as a;a. Contra account to current assets.;b. Contra account to noncurrent assets.;c. Current liability.;d. Noncurrent liability.
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