CPAnet Forum: QUESTION OF THE DAY - MCQ’S ALL SECTIONS

Active Topics

Memberlist

Help

FAR STUDY GROUP
CPAnet Forum : FAR STUDY GROUP

Topic: QUESTION OF THE DAY - MCQ’S ALL SECTIONS (

Topic Closed)

Author

Message

<< Prev Topic | Next Topic >>

AndrewCPA
Major Contributor

Joined: 31 Dec 2009
Location: United States
Online Status: Offline
Posts: 763

Posted: 04 Jan 2011 at 11:21 \| IP Logged

Correct Answer: C

Explanation: The understanding among the auditor, the client, and the specialist should be documented and should cover: the specialist's understanding of the auditor's corroborative use of the specialist's findings, the objectives and scope of the specialist's work, the specialist's relationship to the client, the methods or assumptions to be used, a comparison of the methods and assumptions to those used in the preceding period, and the form and content of the specialist's report.

__________________
Andrew Lee, CPA
Wiley and Kaplan discounts for CPAnet members

AndrewCPA
Major Contributor

Joined: 31 Dec 2009
Location: United States
Online Status: Offline
Posts: 763

Posted: 04 Jan 2011 at 20:11 \| IP Logged

Today’s question: REG

Nash and Ford are partners in a calendar year partnership and share profits and losses equally. For the current year, the partnership had book income of $80,000 which included the following deductions:

Guaranteed salaries to partners:
Nash = $35,000
Ford = $25,000
Contributions = $5,000

What amount should be reported as ordinary income on the partnership return?

A) $80,000

B) $85,000

C) $140,000

D) $145,000

__________________
Andrew Lee, CPA
Wiley and Kaplan discounts for CPAnet members

AndrewCPA
Major Contributor

Joined: 31 Dec 2009
Location: United States
Online Status: Offline
Posts: 763

Posted: 05 Jan 2011 at 13:54 \| IP Logged

Correct Answer: B

Explanation: Book income should include the deductions for guaranteed payments and contributions. However, for the computation of ordinary income, only guaranteed payments are allowed. The contributions represent a separately stated item and are not deductible in computing ordinary income.

Income per books: $80,000
Add back contributions: $5,000
Ordinary income: $85,000

__________________
Andrew Lee, CPA
Wiley and Kaplan discounts for CPAnet members

AndrewCPA
Major Contributor

Joined: 31 Dec 2009
Location: United States
Online Status: Offline
Posts: 763

Posted: 05 Jan 2011 at 20:19 \| IP Logged

Today’s question: FAR

North Bank is analyzing Belle Corp.'s financial statements for a possible extension of credit. Belle's quick ratio is significantly better than the industry average. Which of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle's creditworthiness?

A) Fluctuating market prices of short-term investments may adversely affect the ratio.

B) Increasing market prices for Belle's inventory may adversely affect the ratio.

C) Belle may need to sell its available-for-sale investments to meet its current obligations.

D) Belle may need to liquidate its inventory to meet its long-term obligations.

__________________
Andrew Lee, CPA
Wiley and Kaplan discounts for CPAnet members

danula
Regular
Regular

Joined: 04 Jul 2010
Location: United States
Online Status: Offline
Posts: 132

Posted: 05 Jan 2011 at 20:40 \| IP Logged

A, but why adversely? Inventory is not part of quick ratio, so b and d
are out and a better quick ratio wouldn't make you believe that they
have no money to pay current liabilities. I will say fluctuations of
market where trading securities will be overvalued will overstate fair
value of current assets...

__________________
__________________
FAR - July 2010 - 79
REG - July 2010 - 82
BEC - Aug 2010 - 87
AUD - Nov 2010 - 91
Indiana candidate

<< Prev Page of 164 Next >>

Printable version

You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum