1.AUD
Which of the following represents the procedure managers use to identify whether the company has information that unauthorized individuals want,how these individuals could obtain the information ,the value of the information ,and the probability of unauthorized access occurring?
a. Systems assessment.
b. Risk assessment.
c. Test of controls.
d. Disaster recovery plan assessment.
2.BEC
A company sells 1,500 units of a particular item each year and orders the items in equal quantities of 500 units at a price of $5 per unit. No safety stocks are held. If the company has a cost of capital of 12%, its annual cost of carrying inventory is
A. $180
B. $900
C. $150
D. $300
3.REG
A CPA prepared a tax return that involved a tax shelter transaction that was disclosed on the return. In which of the following situations would a tax return preparer penalty not be applicable?
A. There was substantial authority for the position.
B. It is reasonable to believe that the position would more likely that not be upheld.
C. There was a reasonable possibility of success for the position.
D. There was a reasonable basis for the position.
4.FAR
Deficits accumulated during the development stage of a company should be
A. Capitalized and written off in the first year of principal operations.
B. Reported as organization costs.
C. Reported as a part of stockholders’ equity.
D. Capitalized and amortized over a 5-year period beginning when principal operations
Answer:
1.B
Choice "b" is correct. The first step in risk assessment is to identify the risks. The question is asking about the risk of unauthorized access to information. The steps would certainly be to identify whether the company has information that unauthorized individuals might want (and what company does not have such information), the value of the information, how those individuals could obtain the information, and the probability of unauthorized access occurring. The steps here are not necessarily in the same order as in the question; regardless, it is risk assessment.
Choice "d" is incorrect. It is not particularly clear exactly what "disaster recovery plan assessment" actually is. It probably means the review of a disaster recovery plan to determine if it will be effective. Regardless, it has nothing to do, per se, with the safeguarding of valuable information.
Choice "a" is incorrect. It is not particularly clear exactly what "system assessment" actually is. It probably means the review of a system to determine if it is operating effectively and efficiently. Regardless, it has nothing to do, per se, with the safeguarding of valuable information.
Choice "c" is incorrect. Test of controls are audit tests to determine if described controls have been placed in operation and are working effectively. Tests of controls have nothing to do with the above scenario, although there are controls involved in the safeguarding of information and those controls may be tested in the course of an audit. This terminology is just terminology that might sound good to an accountant/auditor but which has no real relevance to the question.
2.C
C is corrent. The annual cost of carrying inventory is the average inventory level times the cost per unit of inventory times the cost of capital. It is calculated as follows: Average inventory level x Unit cost x Cost of capital = (order size / 2) x $5 x .12 = (500 / 2) x $5 x .12 = $150.
A is incorrect. This answer is obtained by using the total annual quantity rather than the average inventory level and by neglecting to multiply by the unit price: = Annual quantity x .12 = 1,500 x .12 = 180.
B is incorrect. This answer is obtained by using the total annual quantity rather than the average inventory level: = 1,500 x $5 x .12 = $900.
D is incorrect. This answer is obtained by using the order size rather than the average inventory level: = Order size x $5 x .12 = 500 x $5 x .12 = $300.
3.B
Choice "b" is correct. With regards to a tax shelter, a penalty for understatement of taxpayer liability could apply to a CPA unless it is reasonable to believe that the position would more likely than not be upheld on its merits. This is more stringent than a reasonable basis for the position, a reasonable possibility of success for the position, and substantial authority for the position.
Choices "c", "a", and "d" are incorrect per the above explanation.
4.C
C is corrent. Per ASC Topic 915, a development stage company shall use the same generally accepted accounting principles that apply to established operating enterprises to govern the recognition of revenue and to determine whether a cost is to be capitalized or expensed as incurred. Accordingly, capitalization or deferral of costs shall be subject to the same assessment that would be applicable in an established operating enterprise. Thus, deficits accumulated during the development stage would not be capitalized, rather they will be reported as part of stockholders’ equity.
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