1.AUD
In verifying the amount of goodwill recorded by a client, the most convincing evidence which an auditor can obtain is by comparing the recorded value of assets acquired with the
A. Seller’s book value as evidenced by financial statements.
B. Appraised value as evidenced by independent appraisals.
C. Insured value as evidenced by insurance policies.
D. Assessed value as evidenced by tax bills.
2.BEC
A procedural control used in the management of a computer center to minimize the possibility of data or program file destruction through operator error includes
A. External labels.
B. Crossfooting tests.
C. Control figures.
D. Limit checks.
3.REG
In 2012, Golden bought 100 shares of a listed stock for $5,000. In June 2015, when the stock’s fair market value was $7,000, Golden gave this stock to his sister, Lucy. No gift tax was paid. Lucy died in October 2015, bequeathing this stock to Golden, when the stock’s fair market value was $9,000. Lucy’s executor did not elect the alternate valuation. What is Golden’s basis for this stock after he inherits it from Lucy’s estate?
A. $0
B. $5,000
C. $7,000
D. $9,000
4.FAR
Golden Co. prepares its statement of cash flows using the indirect method. Golden’s unamortized bond discount account decreased by $25,000 during the year. How should Golden report the change in unamortized bond discount in its statement of cash flows?
A. As a financing cash inflow.
B. As a financing cash outflow.
C. As an addition to net income in the operating activities section.
D. As a subtraction from net income in the operating activities section.
Answer:
1.B
B is correct because identifiable assets acquired in a "purchase" business combination should be recorded at their appraised values.
A is incorrect because the seller’s book value is not relevant to the value at which the purchaser should record the assets.
C is incorrect because for valid business reasons a firm may insure its assets for other than their cost.
D is incorrect because assessed tax values may deviate from the value to be recorded under generally accepted accounting principles.
2.A
A is corrent because external labels will prevent file destruction by properly identifying each file.
B is incorrect because crossfooting tests address the accuracy of information on a file, not the physical security of a program file.
C is incorrect because control figures address the accuracy of information on a file, not the physical security of a program file.
D is incorrect because limit checks address the accuracy of information on a file, not the physical security of a program file.
3.B
This answer is correct. A special rule applies if a decedent (Lucy) acquires appreciated property as a gift within 1 year of death and this property passes back to the donor (Golden) or the donor’s spouse. When this occurs, the beneficiary’s basis is the basis of the property in the hands of the decedent before death, rather than fair market value at date of death. Since Lucy had received the stock as a gift, her basis before death was $5,000, which then becomes the basis of the stock to Golden.
4.C
This answer is correct. The total amount of interest expense is subtracted to arrive at net income. However, only the coupon payment is paid during the current year. The $25,000 of the discount amortized during the period represents interest expensed but not yet paid. Therefore, this answer is correct because the decrease in the discount account should be added to net income in the operating activities section of the statement of cash flows.
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