1.AUD
The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?
A. The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general.
B. The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients.
C. The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.
D. The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted.
2.BEC
Encryption protection is least likely to be used in which of the following circumstances?
A. When transactions are transmitted over local area networks.
B. When wire transfers are made between banks.
C. When confidential data are sent by satellite transmission.
D. When financial data are sent over dedicated leased lines.
3.REG
Which of the following will be legally binding on all parties despite lack of consideration?
A. An irrevocable oral promise by a merchant to keep an offer open for 60 days.
B. A promise to donate money to a charity which the charity relied upon in incurring large expenditures.
C. A promise to pay for the college education of the child of a person who saved the promisor’s life.
D. A signed modification to a contract to purchase a parcel of land.
4.FAR
A company issued rights to its existing shareholders to purchase for par unissued shares of common stock with a par value of $10 per share. When the market value of the common stock was $12 per share, the rights were exercised. Common stock should be credited at $10 per share and
A. Appropriation for stock retirement credited at $2 per share.
B. Additional paid-in capital credited at $2 per share.
C. Retained earnings credited at $2 per share.
D. No credit made to additional paid-in capital or retained earnings.
Answer:
1.C
This answer is correct because all such audits require auditors to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.
2.A
A is correct. Various factors need to be considered. Encoding is important when confidential data are transmitted between geographically separated locations that can be electronically monitored. Although LANs may need encryption protection, the type of data and the described communication media make the other options appear more vulnerable.
3.B
This answer is correct. A promise to donate money to a charity which the charity relied upon in incurring large expenditures is a situation involving promissory estoppel. Promissory estoppel acts as a substitute for consideration and renders the promise enforceable. The elements necessary for promissory estoppel are (1) detrimental reliance on a promise, (2) reliance on the promise is reasonable and foreseeable, and (3) damage results (injustice) if the promise is not enforced.
4.D
D is corrent because the stock rights entitle the holder to purchase stock at par value ($10), not market price ($12). Since only a memorandum entry was required when the rights were originally issued, the entry to record the exercise of the rights is
Cash 10
Common stock 10
A is incorrect because exercise of stock rights and issuance of stock do not affect retained earnings or an appropriation thereof.
B is incorrect because the exercise price was par, not market. Therefore, additional paid-in capital will not be used in this situation.
C is incorrect because exercise of stock rights and issuance of stock do not affect retained earnings.
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