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 2015, Golden Corp. contributed $40,000 to a qualified charitable organization. Golden’s 2015 taxable income before the deduction for charitable contributions was $410,000. Included in that amount is a $20,000 dividends-received deduction. Golden also had carryover contributions of $5,000 from the prior year. In 2015, what amount can Golden deduct as charitable contributions?
A. $40,000
B. $41,000
C. $43,000
D. $45,000
4.FAR
In general, an enterprise preparing interim financial statements should
A. Disregard permanent decreases in the market value of its inventory.
B. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.
C. Use the same accounting principles followed in preparing its latest annual financial statements.
D. Defer recognition of seasonal revenue.
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.C
C is correct. A corporation’s charitable contribution deduction is limited to 10% of its taxable income before the charitable contribution and dividends-received deductions. Since Golden’s taxable income of $410,000 already included a $20,000 dividends-received deduction, $20,000 must be added back to arrive at Golden’s contribution base of $430,000. Thus, Golden’s maximum contribution deduction for 2015 would be $430,000 × 10% = $43,000. Golden would deduct the $40,000 contributed during 2015, plus $3,000 of its $5,000 carryover from 2014. As a result, Golden will have a $2,000 contribution carryover from 2014 to 2016.
4.C
This answer is correct because the interim financial statements should be prepared using the same principles as are used in the company’s annual financial statements.
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