Question 4 Which technique would be most precise in determining the variable cost component of manufacturing overhead costs? Delphi method High-low method Regression analysis Scatter-graph analysis . 2 points Question 5 Which of the following budgets provides information for preparation of the owner’s equity section of a budgeted balance sheet? Sales budget Cash budget Capital expenditures budget Budgeted income statement . 2 points Question 6 Net present value as used in investment decision-making is stated in terms of which of the following options? Net income Earnings before interest taxes and depreciation Earnings before interest and taxes Cash flow . 2 points Question 7 Which of the following statements is correct regarding financial decision making? Opportunity cost is recorded as a normal business expense. The accounting rate of return considers the time value of money. A strength of the payback method is that it is based on profitability. Capital budgeting is based on predictions of an uncertain future. . 2 points Question 8 The management of a company would do which of the following to compare and contrast its financial information to published information reflecting optimal amounts? Budget Forecast Benchmark Utilize best practices . 2 points Question 9 To measure inventory management performance a company monitors its inventory turnover ratio. Listed below are selected data from the company’s accounting records: Current year Prior year Annual sales $2 525 000 $2 125 000 Gross profit percent 40% 35% Beginning finished goods inventory for the current year was 15% of the prior-year’s annual sales and ending finished goods inventory was 22% of the current-year’s annual sales. What was the company’s inventory turnover at the end of the current period? 1.82 2.31 2.73 3.47 . 2 points Question 10 Which of the following statements is correct regarding the payback method as a capital budgeting technique? The payback method considers the time value of money. An advantage of the payback method is that it indicates if an investment will be profitable. The payback method provides the years needed to recoup the investment in a project. Payback is calculated by dividing the annual cash inflows by the net investment. . 2 points Question 11 In order to perform a financial statement audit the external auditors Must be independent in fact only Must be independent in appearance only Must have their independence certified by a state agency Must be independent in fact and in appearance . 2 points Question 12 The Sarbanes-Oxley Act generally does not apply to Large U.S. S corporations that have registered debt with the SEC Large U.S. partnerships that have registered equity securities with the SEC U.S. limited liability companies that are exempt from SEC registration Non U.S. corporations that have registered debt with the SEC . 2 points Question 13 The certifications on the accuracy of the financial statements and the reliability of internal controls under Section 302 of the Sarbanes-Oxley Act do not include that The signing officers have reviewed the financial reports. Based on the signing officers’ knowledge the reports are materially accurate with no false statements or misleading omissions. Based on the signing officers’ knowledge the financial information is presented fairly including the financial statements footnotes and management’s discussion and analysis. The audit committee is responsible for the appointment and oversight of the external auditor. . 2 points Question 14 Under Section 404 of the Sarbanes-Oxley Act who is required to attest to and report on management’s assessment of internal control over financial reporting? The board of directors The audit committee The chief executive officer and chief financial officer The external auditor . 2 points Question 15 Which of the following is the least important factor in determining the size of a sample for testing internal control over financial reporting? The nature of the control The frequency of the control The physical location where the control is tested The prior experience with the control . 2 points Question 16 Which of the following is a true statement regarding materiality as it relates to corporate governance? There is no concept of materiality relevant to corporate governance. It is a fundamental concept that helps distinguish the important from the trivial. Users of financial statements are not relevant to determining materiality. It does not permit decision-makers to omit issues from consideration. . 2 points Question 17 Which of the following factors would most likely be considered an inherent limitation to an entity’s internal control? The complexity of the information processing system Human judgment in the decision-making process The ineffectiveness of the board of directors The lack of management incentives to improve the control environment . 2 points Question 18 The Enterprise Risk Management – Integrated Framework is similar to the Internal Control—Integrated Framework in the following way: Both include consideration of an entity’s strategic objectives. Both focus on categorizing specific responses to risk. Both use the concepts of risk appetite and risk tolerance. Both employ the foundational control environment as the basis for the rest of the framework. . 2 points Question 19 The SEC assigns responsibility for the evaluation of the effectiveness of internal controls over financial reporting to Management External auditors The audit committee The board of directors . 2 points Question 20 Which of the following is not one of the five key components that make up the Committee Of Sponsoring Organizations’ (COSO) internal control integrated framework? Risk assessment Financial statement preparation Information and communication Monitoring . 2 points Question 21 During the Year 1 ski season Sunglow Ski Resort had its three access roads blocked by snow. Sunglow estimates that each blocked road results in lost revenue of $4 500 per day unless all three roads are blocked. When all three roads are blocked estimated lost revenue is $35 000 for that day. Sunglow estimates that weather will be similar in Year 2. It can retain a snowplow service for $50 000 annually to clear blocked roads. The variable cost of operating the snowplow is $500 per day per blocked road. If Sunglow uses a snowplow service in Year 2 the estimated benefit would be Number of blocked roads per day 0 1 2 3 Number of days 120 16 10 1 $267.000 $127 500 $125 500 $106 000 . 2 points Question 22 Yarrow Co. is considering the purchase of a new machine that costs $450 000. The new machine will generate net cash flow of $150 000 per year and net income of $100 000 per year for five years. Yarrow’s desired rate of return is 6%. The present value factor for a five-year annuity of $1 discounted at 6% is 4.212. The present value factor of $1 at compound interest of 6% due in five years is 0.7473. What is the new machine’s net present value? $450 000 $373 650 $181 800 $110 475 . 2 points Question 23 Which of the following is necessary to be an audit committee financial expert criteria specified in the Sarbanes-Oxley Act of 2002? A limited understanding of generally accepted auditing standards Education and experience as a certified financial planner Experience with internal accounting controls Experience in the preparation of tax returns . 2 points Question 24 Each of the following is a limitation of enterprise risk management (ERM) except ERM deals with risk which relates to the future and is inherently uncertain. ERM operates at different levels with respect to different objectives. ERM can provide absolute assurance with respect to objective categories. ERM is as effective as the people responsible for its functioning. . 2 points Question 25 Which of the following is one of the four perspectives of a balanced scorecard? Just in time Innovation Benchmarking Activity-based costing . 2 points Question 26 An unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made is referred to as: Independence Objectivity Proficiency Due Professional Care . 2 points Question 27 Which of the following are not assumptions of classical economic theory? Flexible interest rates allow self-correcting equilibrium of savings and investing. Flexible prices allow self-correcting of shortages and surpluses in product markets. Full employment is not necessarily an attribute of equilibrium. An increase in money leads to an increase in aggregate demand. . 2 points Question 28 Two different companies of approximately similar financial strength and with similar management teams both have 30-year bonds that trade in active secondary markets. Nile Company is located in a country with relatively small increases in overall price levels; its bonds have a 4% return. Amazon Company is located in a country with relatively large increases in overall price levels each year; its bonds have a 14% return. What is the difference in the interest rate between Nile Company’s bonds and Amazon Company’s bonds called? Default risk premium Inflation premium Liquidity premium Maturity risk premium . 2 points Question 29 Weighted average and first in first out (FIFO) equivalent units would be the same in a period when which of the following occurs? No beginning inventory exists. No ending inventory exists. Beginning inventory units equal ending inventory units. Both a beginning and an ending inventory exist but are not necessarily equal. . 2 points Question 30 Assume the following information regarding the production potential of one unit of resources: Argentina Taiwan Beef 15 tons 6 tons Chips 1 800 units 1 500 units In trade between Argentina and Taiwan Taiwan has An absolute advantage in producing beef An absolute advantage in producing chips A comparative advantage in producing beef A comparative advantage in producing chips . 2 points Question 31 Written Communication: You are a member of a team auditing Crafted Furniture LLC. The new purchasing manager has a retail background and is curious as to what the auditors mean by the classifications of manufacturing costs. Your supervisor assigns you to prepare a memo explaining the classifications of direct materials direct labor and overhead costs. Type your communication in the response area below. REMINDER: Your response will be graded for both technical content and writing skills. Technical content will be evaluated for information that is helpful to the intended reader and clearly relevant to the issue. Writing skills will be evaluated for development organization and the appropriate expression of ideas in professional correspondence. Use a standard business memo or letter format with a clear beginning middle and end. Do not convey information in the form of a table bullet point list or other abbreviated presentation. To: Crafted Furniture LLC Re: Manufacturing Cost Elements Press Tab to enter the content editor. For the toolbar press ALT F10 (PC) or ALT FN F10 (Mac). — Font family –Andale MonoArialArialBlackBookAntiquaComic Sans MSCourierNewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchetMSVerdanaWebdingsWingdings — Font size –1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt) — Format –HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code — Font family — — Font size — Path: Words:0 . 6.66667 points Question 32 Written Communication: You are a member of a team auditing Cameron Hardware. The owner a sole proprietor with a strong operations background is curious as to why the audit team considers the life cycle of products. Your supervisor assigns you to prepare a memo explaining the purpose of an auditor’s consideration of the product life cycle and provide a description of stages in that cycle. Type your communication in the response area below. REMINDER: Your response will be graded for both technical content and writing skills. Technical content will be evaluated for information that is helpful to the intended reader and clearly relevant to the issue. Writing skills will be evaluated for development organization and the appropriate expression of ideas in professional correspondence. Use a standard business memo or letter format with a clear beginning middle and end. Do not convey information in the form of a table bullet point list or other abbreviated presentation. To: Cameron Hardware Re: Product Life Cycle Relevance to an Audit Press Tab to enter the content editor. For the toolbar press ALT F10 (PC) or ALT FN F10 (Mac). — Font family –Andale MonoArialArialBlackBookAntiquaComic Sans MSCourierNewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchetMSVerdanaWebdingsWingdings — Font size –1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt) — Format –HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code — Font family — — Font size — Path: Words:0 . 6.66667 points Question 33 Written Communication: You are on the audit team that audits Redwood Furniture Company a new family owned business which manufactures wooden furniture such as tables and chairs. The owner who takes care of the company’s accounting has a fair amount of knowledge concerning cost accounting for direct labor direct material and overhead. However he does not know the proper way of accounting for spoilage that occurs in this type of manufacturing. You are asked to prepare a brief memo explaining the nature of spoilage and how it is properly accounted for.
