2009 AICPA Newly Released Questions Business 1.

. A company's target gross margin is 40% of the selling price of a product that costs $89 per unit. The product's selling price should be: The selling price is computed at $148.33. The fact pattern provides the basic relationships and requires that you determine selling price either algebraically or in a tabular form. Putting the fact pattern in a table, the provide information is used to compute the solution as follo s! ata !ro"ided #omputed #elling price 'osts +ross margin Percent "mount 1$$% &&& &&& (8)* 4$% &&& Percent "mount 1$$% 148.33 60% (8)* 4$%

The problem provides that the company has a 4$% gross margin. ,y e-tension, costs are .$% of sales. /f costs are $8), then selling price must be $148.33, as calculated belo ! #elling price 0 'osts 1 2atio of costs to sales #elling price 0 $8) 1 .$% #elling price 0 $148.33 2. $ren #o. manufactures and sells t%o products %ith selling prices and "ariable costs as follo%s: A & #elling price $18.$$ $33.$$ 4ariable costs 13.$$ 14.$$ $ren's total annual fi'ed costs are $(8)400. $ren sells four units of A for e"ery unit of &. *f operating income last year %as $+8)800) %hat %as the number of units $ren sold, 5ren ill have sold a total of 1$,6$$ units to achieve a $38,8$$ operating profit assuming the fact pattern described above. The question requires the candidate to recall the basic contribution margin formula and apply some algebra. The fact pattern describes that the operating income is $38,8$$ and the fi-ed costs are $38,4$$. The contribution margin is7 therefore, the total of the t o $.8,3$$. The basic formula to compute units sold is! '9 per unit - :nits 0 $.8,3$$ The fact pattern indicates that 5ren has t o products ith unique selling and cost patterns.

;irst, compute the contribution margin! #elling price < 4ariable cost 0 '9 per unit Product " $18 < $13 0 $. Product , $33 < $14 0 $8 #econd, quantify the selling pattern and the relationship bet een the products. 5ren sells 4 units of Product " for every unit of Product ,, so e-pressing Product " in terms of Product ,! Product " 0 4 - Product , Third, determine the number of units of Product , that ere sold! $. contribution margin - (4,* = $8 contribution margin - , 0 $.8,3$$ 34, = 8, 0 .8,3$$ 33, 0 .8,3$$ , 0 3,1$$ ;ourth, determine the number of Product " and the total number of products sold! " 0 4 - , (4 - 3,1$$* or 8,4$$ Total units 0 3,1$$ = 8,4$$ or 1$,6$$ 3. $hich form of business entity has the follo%ing attributes, /. >imited liability for all its o ners. //. 'an permit all its o ners to participate in management and control of the entity. ///. "bsent an agreement to the contrary, is dissolved on the death, ithdra al, or ban?ruptcy of an o ner. >>'. "ll members in a limited liability company have limited liability. :nless they choose other ise, all members of a limited liability company may participate in management. " limited liability company is dissolved upon the death, retirement, resignation, ban?ruptcy, etc., of a member.

4. -oint "entures are most similar to %hich of the follo%ing types of business organi.ations, +eneral partnership. The legal requirements, consequences, advantages, and disadvantages of forming a @oint venture generally are identical to those of a general partnership. 5. $hich of the follo%ing statements best states the purpose of cumulati"e "oting, /n cumulative voting, each share is entitled to one vote for each director position that is being filled and the shareholders may cast the votes in any ay, including casting all for a single candidate. This helps minority shareholders gain representation on the board. 6. $hich of the follo%ing forms of business generally pro"ides all o%ners %ith limited liability %hile a"oiding federal ta'ation of income at the entity le"el, /n a subchapter # corporation the entity is ta-ed li?ed a partnership, but the shareholders still en@oy the limited liability of the corporate form. 7. /nder the 0e"ised 1odel &usiness #orporation Act) %hich of the follo%ing di"idends is not defined as a distribution, Technically, dividends paid in stoc? are not a distribution. #toc? dividends are dividends in the corporationAs o n authoriBed but unissued shares. Co assets are distributed. The stoc?holderAs ealth and percentage of o nership are not increased. " stoc? dividend has no affect on earnings and profits for federal income ta- purposes. 8. $hich of the follo%ing rates is most commonly compared to the internal rate of return to e"aluate %hether to ma2e an in"estment, The eighted<average cost of capital is frequently used as the hurdle rate ithin capital budgeting techniques. /nvestments that provide a return that e-ceeds the eighted<average cost of capital should continuously add to the value of the firm. 9. $hat is the most li2ely effect if a court pierces the corporate "eil, 5hen the Dcorporate veil is pierced,D courts disregard the corporate form and hold shareholders, officers or directors personally liable. 'ourts generally ill pierce the corporate veil for commingling of funds, inadequate capitaliBation at time of formation or fraud. 10. 3aton is the sole o%ner of a construction company. 3aton is concerned about personal liability. $hich of the follo%ing entities %ill best allo% 3aton to limit personal liability, a. #ole proprietorship. b. ' corporation. c. +eneral partnership. d. >imited partnership. 'hoice DbD is correct. Ene of the main advantages of a '<corporation is that stoc?holders, directors and officers generally are not personally liable for the obligations of the corporation. +enerally, only the corporation itself can be held liable. 11. $hich of the follo%ing costs %ould decrease if production le"els %ere increased %ithin the rele"ant range, a. Total fi-ed costs. b. 4ariable costs per unit. c. Total variable costs. d. ;i-ed costs per unit. 'hoice DdD is correct. /n the relevant range, fi-ed costs are constant in total, but decrease per unit as production levels increase. 12. $hich of the follo%ing assumptions is associated %ith the economic order 4uantity formula, a. The carrying cost per unit ill vary ith quantity ordered. b. The cost of placing an order ill vary ith quantity ordered. c. Periodic demand is ?no n. d. The purchase cost per unit ill vary based on quantity discounts. 'hoice DcD is correct. The economic order quantity formula (FEG* assumes that periodic demand is ?no n. "nnual sales volume is a crucial variable in the FEG formula.

13. $hich of the follo%ing statements about in"estment decision models is true, a. The discounted paybac? rate ta?es into account cash flo s for all periods. b. The paybac? rule ignores all cash flo s after the end of the paybac? period. c. The net present value model says to accept investment opportunities hen their rates of return e-ceed the companyAs incremental borro ing rate. d. The internal rate of return rule is to accept the investment if the opportunity cost of capital is greater than the internal rate of return. 'hoice DbD is correct. The paybac? period computation ignores cash flo s after the initial investment has been recovered. The paybac? method focuses on liquidity and the time it ta?es to recover the initial investment. 14. $hich of the follo%ing 5ederal 0eser"e policies %ould increase the money supply, a. 'hange the multiplier effect. b. /ncrease reserve requirements. c. 2educe the discount rate. d. #ell more :.#. Treasury bonds. 'hoice DcD is correct. /f the ;ed anted to increase the money supply, it ould reduce the discount rate. " lo er discount rate ould reduce short<term interest rates, hich ould encourage more (short<term* borro ing at the lo er interest rate (lo er cost means more demand*. 9ore borro ing means more lending and more money in the economy. 15. $hich of the follo%ing tas2s %ould be included in a document flo%chart for processing cash receipts, a. 'ompare control and remittance totals. b. 2ecord returns and allo ances. c. "uthoriBe and generate an invoice. d. "uthoriBe and generate a voucher. 'hoice DaD is correct. " tas? (a bo- on a document or system flo chart* to compare control totals and remittance totals ould be included in the processing of cash receipts. Cote that this is a very general step that could appear on almost any document flo chart. "ll of the other choices in this question are specific to a particular type of processing. 16. The performance audit report of an information technology department indicated that the department lac2ed a disaster reco"ery plan. $hich of the follo%ing steps should management ta2e first to correct this condition, a. ,ulletproof the information security architecture. b. Hesignate a hot site. c. Hesignate a cold site. d. Prepare a statement of responsibilities for tas?s included in a disaster recovery plan. 'hoice DdD is correct. The first step in preparing a disaster recovery plan is to determine the responsibilities of the various participants in the plan. Prior to that first step, a determination is made of the ?ind and e-tent of recovery that is needed. Ence that decision is made, the people responsible for the recovery can be determined (and those people ill normally prepare the plan itself*. >i?e ith any other plan, an unclear designation of responsibilities ill normally lead to a lousy plan, and a lousy plan ill lead to a lousy recovery. "ll plans need to be tested. 17. The regression analysis results for A&# #o. is sho%n as y 6 90' 7 48. The standard error 9:b; is (0 and coefficient of determination 9r+; is 0.8<. The budget calls for production of <00 units. $hat is A&#'s estimate of total costs, The problem tells us that e plan to produce 1$$ units so total costs, y, is computed as follo s! I 0 ()$ - 1$$* = 46 I 0 ),$46 The coefficient of determination measures the proportion of the total variation in DyD or total cost that is e-plained by the total variation in the independent variable, -, or variable costs. The coefficient of determination measures the reliability of the formula, but is not used for determining the value of DyD. The standard error (also standard error of the mean* is a measurement used in con@unction ith standard deviation computations and is not relevant to this pro@ection. 18. An information technology director collected the names and locations of 2ey "endors) current hard%are configuration) names of team members) and an alternati"e processing location. $hat is the director most li2ely preparing, a. Hata restoration plan. b. Hisaster recovery plan. c. #ystem security policy. d. #ystem hard are policy.

'hoice DbD is correct. 9ore than li?ely, the director is preparing a disaster recovery plan. 19. A company currently has <)000 shares of common stoc2 outstanding %ith .ero debt. *t has the choice of raising an additional $<00)000 by issuing 9% long=term debt) or issuing 800 shares of common stoc2. The company has a 40% ta' rate. $hat le"el of earnings before interest and ta'es 93&*T; %ould result in the same earnings per share 93!:; for the t%o financing options, Farnings before interest and ta-es (F,/T* of $38,$$$ ould produce identical FP# amounts of $1$.8$ under both the equity and debt financing assumptions provided in the fact pattern. Fquity ;inancing F,/T $ 38,$$$ /nterest e-pense $ Eperating income 38,$$$ Ta-es (4$%* (1$,8$$* Cet income 1.,3$$ #hares outstanding 1 1,6$$ FP# $ 1$.8$ Hebt ;inancing $ 38,$$$ (),$$$* 18,$$$ (8,3$$* 1$,8$$ 1 1,$$$ $ 1$.8$

(1$$,$$$ - )%*

20. $hat does the consumer price inde' measure, The consumer price inde- is a measure of the inflation rate (the percentage change of the consumer price inde- from one period to the ne-t*. /t is only one measure of inflation7 there are others, such as the producers price inde-, but the consumer price inde- is the most idely ?no n and used. 21. !latinum #o. has a recei"able due in (0 days for (0)000 euros. The treasurer is concerned that the "alue of the euro relati"e to the dollar %ill drop before the payment is recei"ed. $hat should !latinum do to reduce this ris2, a. ,uy 3$,$$$ euros no . b. Fnter into an interest rate s ap contract for 3$ days. c. Fnter into a for ard contract to sell 3$,$$$ euros in 3$ days. d. Platinum cannot effectively reduce this ris?. 'hoice DcD is correct. #ince Platinum is going to receive euros in 3$ days, it ill ant to loc? in the price of euros no . The ay to do that is to enter into a for ard contract (referred to in the te-t as a for ard hedge* to sell euros in 3$ days. The price ill be fi-ed no , but the transaction ill not occur until the end of the 3$ day period. " futures contract might be able to be used also. Cote that, ith the fi-ed price, Platinum ill not be hurt if the price of euros in terms of dollars falls, but it ill also not benefit if the price of euros in terms of dollars rises. /n this question, the treasurer as concerned about the price of euros dropping. 22. $hich of the follo%ing best defines electronic data interchange 93 *; transactions, a. Flectronic business information is e-changed bet een t o or more businesses. b. 'ustomersA funds<related transactions are electronically transmitted and processed. c. Fntered sales data are electronically transmitted via a centraliBed net or? to a central processor. d. Products sold on central eb servers can be accessed by users any time. 'hoice DaD is correct. The best definition of FH/ is electronic (computer<to<computer* e-change of business transaction documents (business information*. FH/ is al ays bet een t o separate businesses (not internally*. 23. $hich of the follo%ing entities does not re4uire the appro"al of the state in %hich the entity is formed, a. " general partnership. b. " limited liability partnership. c. " limited liability company. d. " corporation. 'hoice DaD is correct. :nder the common la and the 2evised :niform Partnership "ct there is no requirement for a general partnership to file ith the state and obtain state approval. "ll that is necessary to form a general partnership is! (1* an agreement (ii* bet een at least t o competent parties (iii* to carry on as co<o ners of a business for profit.

24. 5reely fluctuating e'change rates perform %hich of the follo%ing functions, 'hoice DaD is correct. They automatically correct a lac? of equilibrium in the balance of payments. "s e have mentioned in our e-planations of other questions, sometimes questions that are released by the "/'P" are released because they ill never be used again or because they ere test questions that didnAt Dma?eD it to be used as part of the recurring database. This may be the case ith this question, but it is a good learning e-perience for candidates, as questions li?e this may appear on any e-am. "ccording to the e-aminers, it appears that Dfreely fluctuating (currency* e-change ratesD correct a lac? of equilibrium in the balance of payments. /t is clear that none of the other choices is correct (see e-planations belo *. /t is unclear hat the statement in DaD even means, but it is the correct ans er, and e ?no that none of the others are correct. Eur best e-planation of the ans er option follo s. The balance of payments has t o ma@or components! the current account ( hich is basically imports and e-ports* and the capital account ( hich is basically investments in this country and foreign countries*. The t o components generally offset each other (for the most part*. ;reely fluctuating e-change rates ill impact both of these components because the price of the currencies ill fluctuate. 5hat the e-aminers appear to be saying is that freely fluctuating e-change rates ill affect the t o components in opposite directions. "ssume dollars and euros. /f dollars are or become cheaper, imports ill be more e-pensive and e-ports ill be less e-pense. This condition ill reduce imports and increase e-ports, thereby orsening the current component of the balance of payments. Jo ever, if dollars are cheaper, investments in the :# ill be less e-pensive. Thus, those in the euro Bone ill be able to come into the :# and buy investments at a good price for them. 5hen they do that, the capital account balance ill move in the opposite direction from the current account balance. 25. $hich of the follo%ing characteristics %ould indicate that an item sold %ould ha"e a high price elasticity of demand, a. The item has many similar substitutes. b. The cost of the item is lo compared to the total budget of the purchasers. c. The item is considered a necessity. d. 'hanges in the price of the item are regulated by governmental agency. 'hoice DaD is correct. /f an item has many similar substitutes, its price elasticity of demand ill be high. 'ustomers can al ays s itch to a substitute, so a change in price may affect demand substantially. 26. A company has an outstanding one=year ban2 loan of $800)000 at a stated interest rate of 8%. The company is re4uired to maintain a +0% compensating balance in its chec2ing account. The company %ould maintain a .ero balance in this account if the re4uirement did not e'ist. $hat is the effecti"e interest rate of the loan, 'hoice DbD is correct. The effective rate of interest rate is 1$%. The effective interest rate represents the actual finance charges associated ith a borro ing after reducing loan proceeds for charges and fees. The fact pattern tells us that that finance charges are $4$,$$$ ($6$$,$$$ - 8%*, and the net proceeds or amount available under the loan is $4$$,$$$ (the face value of $6$$,$$$ net of the 3$% compensating balance of $1$$,$$$ K$6$$,$$$ - 3$%L*. The effective rate of interest is the finance charge of $4$,$$$ divided by the net proceeds of $4$$,$$$! $4$,$$$ 1 $4$$,$$$ 0 1$% 27. $hich of the follo%ing is a primary function of a database management system, " primary function of a database management system is to provide the capability to create and modify the database. 28. $hich of the follo%ing types of bonds is most li2ely to maintain a constant mar2et "alue, a. Mero<coupon. b. ;loating<rate. c. 'allable. d. 'onvertible. 'hoice DbD is correct. ;loating<rate bonds ould automatically ad@ust the return on a financial instrument to produce a constant mar?et value for that instrument. Co premium or discount ould be required since mar?et changes ould be accounted for through the interest rate. 29. To maintain effecti"e segregation of duties %ithin the information technology function) an application programmer should ha"e %hich of the follo%ing responsibilities, a. 9odify and adapt operating system soft are. b. 'orrect detected data entry errors for the cash disbursement system. c. 'ode approved changes to a payroll program. d. 9aintain custody of the billing program code and its documentation. 'hoice DcD is correct. "n application programmer ould have the responsibility to code approved changes to a payroll program. " payroll program is an application program. Cote that the changes have been previously Dapproved.D

30. $hich of the follo%ing limitations is common to the calculations of paybac2 period) discounted cash flo%) internal rate of return) and net present "alue, 'hoice DdD is correct. The common disadvantage of all capital budgeting models is their reliance on future data. 'apital financing relates to longer periods of time that are sub@ect to greater levels of uncertainty than other short<term budgeting and financing decisions. 31. A company %ith a combined federal and state ta' rate of (0% has the follo%ing capital structure: $eight *nstrument #ost of capital 4$% ,onds 1$% 6$% 'ommon stoc? 1$% 1$% Preferred stoc? 3$% $hat is the %eighted=a"erage after=ta' cost of capital for this company, 'hoice DdD is correct. The eighted<average cost of capital (5"''* is ).8%. 'omputation of the eighted<average cost of capital purely eights the cost of each form of capital financing ith its relative percentage of total financing. The cost used for the 5"'' is the after<ta- cost of capital. The e-ample provides a number of capital financing instruments and their relative eight in the capital structure. Hebt costs are reduced by ta- benefits hile equity costs are not. The 5"'' is computed as follo s! Hebt 1$% - (1 < .3$* 0 8% - 4$% 0 3.8% 'ommon 1$% - nNa 0 1$% - 6$% 0 6.$% Preferred 3$% - nNa 0 3$% - 1$% 0 3.$% 5"'' ).8% 32. $hich of the follo%ing terms best describes a payroll system, 'hoice DbD is correct. " payroll system is a transaction processing system. /t may use a database management system to store its data (the data has to go some here*, but it is not a database management system per se. 33. To measure in"entory management performance) a company monitors its in"entory turno"er ratio. >isted belo% are selected data from the company's accounting records: "nnual sales +ross profit % #urrent year $3,636,$$$ 4$% !rior year $3,136,$$$ 36%

&eginning finished goods in"entory for the current year %as <8% of the prior=year's annual sales "olume at cost) and ending finished goods in"entory %as ++% of the current=year's annual sales "olume at cost. $hat %as the company's in"entory turno"er at the end of the current period, 'hoice DbD is correct. The inventory turnover is 6..1. The problem requires computation of the elements of inventory turnover (average inventory and cost of goods sold* from the fact pattern to compute the ratio. The current year cost of goods sold is equal to #ales - (1 < +ross profit percent*, as follo s! $3,636,$$$ - .. (1 < .4* 0 $1,616,$$$ /nventory is given as a percentage of sales. 'urrent year<ending inventory is 33% of current year sales. Fnding inventory is $333,3$$ ($1,616,$$$ - 33%* hile beginning inventory is 16% of prior year sales, thus beginning inventory is $3$8,188 K($3,136,$$$ - ..6 (1<.36** - 16%L. "verage inventory is computed as the sum of beginning and ending inventory divided by t o, as follo s! ($333,3$$ = $3$8,188* 1 3 0 $38$,344 /nventory turnover is the ratio of cost of goods sold to average inventory, computed as follo s! $1,616,$$$ 1 $38$,344 0 5.61

34. *n a large multinational organi.ation) %hich of the follo%ing ?ob responsibilities should be assigned to the net%or2 administrator, a. 9anaging remote access. b. Heveloping application programs. c. 2evie ing security policy. d. /nstalling operating system upgrades. 'hoice DaD is correct. /n a large multinational organiBation (or even a medium siBed national organiBation*, managing remote access ould be the responsibility of a net or? administrator. The question used the qualifiers DlargeD and DmultinationalD to distinguish this organiBation from that of a small organiBation, here many different @ob functions might be combined in a single individual. /n a large organiBation, a net or? administrator ould not perform any of these other functions (even assuming that the net or? administrator had the s?illset to perform them*. /T @obs often require a very specific s?ill set. 35. An employee mista2enly enters April (< in the date field. $hich of the follo%ing programmed edit chec2s offers the best solution for detecting this error, a. Enline prompting. b. 9athematical accuracy. c. Preformatted screen. d. 2easonableness. 'hoice DdD is correct. The only programmed edit chec?s in the choices are reasonableness chec?s and edits for mathematically accuracy. Ebviously, "pril does not have 31 days. " chec? on this ?ind of data entry ould be easy to implement and is standard. 36. A ceramics manufacturer sold cups last year for $@.80 each. Aariable costs of manufacturing %ere $+.+8 per unit. The company needed to sell +0)000 cups to brea2 e"en. Bet income %as $8)040. This year) the company e'pects the price per cup to be $9.00C "ariable manufacturing costs to increase ((.(%C and fi'ed costs to increase <0%. Do% many cups 9rounded; does the company need to sell this year to brea2 e"en, 'hoice DcD is correct. The ceramics manufacturer ill need to sell 1),36$ cups under ne cost assumptions to brea? even. The fact pattern provides current brea?even information and requires computation of a revised brea?even sub@ect to ne assumptions. 'urrent 'osts $ 8.6$ 3.36 $ 6.36 $1$6,$$$ "ssumptions - 1.333 0 - 1.1$ 0 2evised 'osts $ ).$$ 3.$$ $ ..$$ 3$,$$$ $ 116,$$$

#elling price (given* 4ariable costs (given* 'ontr. 9argin (computed* ,rea?even in units (given* ;i-ed costs (computed*

'urrent fi-ed costs are computed using the brea?even formula in units as follo s! ;i-ed costs 1 'ontribution margin per unit 0 ,rea?even in units ;i-ed costs 1 $6.36 0 3$,$$$ ;i-ed costs 0 $6.36 - 3$,$$$ 0 $1$6,$$$ 2evised brea?even point in units is computed using the same formula ;i-ed costs 1 'ontribution margin per unit 0 ,rea?even in units $116,$$$ 1 $3.$$ 0 ,rea?even in units 1),36$ 0 ,rea?even in units 37. A company has the follo%ing financial information: :ource of capital >ong<term debt Preferred stoc? 'ommon stoc? !roportion of capital structure .$% 3$% 3$% #ost of capital 8.1% 1$.6% 14.3% ith revised data!

To ma'imi.e shareholder %ealth) the company %ould most li2ely establish a hurdle rate that %ould limit acceptance of pro?ects to only those %ith minimum returns greater than %hat percent, 'hoice DbD is correct. +enerally spea?ing, the financial manager should establish hurdle rates for capital investments at or above the eighted<average cost of capital to ensure that the company receives a return equal to its costs of >T capitaliBa

.$% - 8.1% 0 4.3.% 3$% - 1$.6% 0 3.1% 3$% - 14.3% 0 3.84% 5"'' 9.20% 38. T%o indi"iduals are planning to form a business %ith e4ual o%nership. The indi"iduals %ould li2e to limit their personal liability) a"oid double ta'ation) and be acti"e in the business. $hich of the follo%ing organi.ational structures %ould meet their re4uirements, a. ' corporation. b. >imited liability company. c. >imited partnership. d. +eneral partnership. 'hoice DbD is correct. The ob@ectives of the t o individuals are to limit liability, avoid double ta-ation, and be active in management. "s limited liability company members, they ould have no liability beyond their investment. 5ith a limited liability company, the entity ould be ta-ed li?e a partnership (thus no double ta-ation* unless they chose other ise. "s limited liability company members, they ould have the right to participate in management decisions of the >>'. 39. A company has the follo%ing information in its financial records: 'ash 9ar?etable securities "ccounts receivable Total current assets Cet sales F-penses Cet income &eginning balance $ 3,)$$ 3,8$$ 14,.$$ $ 33,3$$ 3nding balance $ 3,$$$ 4,4$$ 13,)$$ $3$,3$$ $1$3,3$$ 3$,43$ $ 83,88$

$hat is the company's recei"able turno"er ratio, 'hoice DcD is correct. "ccounts receivable turnover is computed as the ratio of sales to average accounts receivable. There is a lot of distracting data in the fact pattern, but on a limited amount of relevant information! ,eginning "N2 $ 14,.$$ Fnding "N2 $ 13,)$$ "verage "N2 ((beginning = ending inv* 1 3* $ 13,86$ #ales $ 1$3,3$$ Turnover 0 $1$3,3$$ 1 13,86$ 0 8.6$ 40. A controller is de"eloping a disaster reco"ery plan for a corporation's computer systems. *n the e"ent of a disaster that ma2es the company's facilities unusable) the controller has arranged for the use of an alternate location and the deli"ery of duplicate computer hard%are to this alternate location. $hich of the follo%ing reco"ery plans %ould best describe this arrangement, 'hoice DbD is correct. The arrangement that the controller ould be loo?ing for ould be a cold site. The reason is the use of an alternate location (either a hot site or a cold site* and then the delivery of duplicate computer hard are (that ma?es it a cold site*. /t ould not necessarily be a good idea to ma?e the controller responsible for the preparation of a disaster recovery plan, ho ever. 'ontrollers are generally e-perts in financial reporting. :nless cross<trained, fe of them ould have the e-pertise to prepare a disaster recovery plan for anything other than the most simple of organiBations and computer systems. 41. #ontrols in the information technology area are classified into the pre"enti"e) detecti"e) and correcti"e categories. $hich of the follo%ing is a pre"enti"e control, a. 'ontingency planning. b. Jash total. c. Fcho chec?. d. "ccess control soft are. 'hoice DdD is correct. "ccess control soft are is a preventive control. /t prevents Dbad peopleD from accessing an organiBationAs systems and data. 42. $hich of the follo%ing topics is the focus of managerial accounting, a. ;inancial statements and other financial reports. b. Jistorical cost principles. c. The needs of creditors. d. The needs of the organiBationAs internal parties.

'hoice DdD is correct. 9anagerial accounting focuses on the needs of internal users (managers* and on data relevant for decision ma?ing. 43. $hich of the follo%ing statements is true regarding opportunity cost, a. Epportunity cost is recorded in the accounts of an organiBation that has a full costing system. b. The potential benefit is not sacrificed hen selecting an alternative. c. /dle space that has no alternative use has an opportunity cost of Bero. d. Epportunity cost is representative of actual dollar outlay. 'hoice DcD is correct. Epportunity cost is the potential benefit lost by selecting a particular course of action. /f idle space has no alternative use, there is no benefit foregone7 opportunity cost is Bero. 44. 1erry #o. has t%o ma?or categories of factory o"erhead: material handling and 4uality control. The costs e'pected for these categories for the coming year are as follo%s: 9aterial handling Guality inspection $13$,$$$ 3$$,$$$

The plant currently applies overhead based on direct labor hours. The estimated direct labor hours are 8$,$$$ per year. The plant manager is as?ed to submit a bid and assembles the follo ing data on a proposed @ob! Hirect materials Hirect labor (3,$$$ hours* $4,$$$ .,$$$

$hat amount is the estimated product cost on the proposed ?ob, 'hoice DdD is correct. The estimated product cost is equal to the sum of prime costs and applied overhead or 18,$$$. Prime costs are the sum of direct labor and direct material! Hirect labor $ .,$$$ Hirect material 4,$$$ #ubtotal, prime costs $ 1$,$$$ "pplied overhead is equal to the overhead rate times the estimated hours! 'omputations of rate < total overhead! 9aterial handling $ 13$,$$$ Guality inspection 3$$,$$$ Total overhead $ 33$,$$$ Total cost driver 8$,$$$ 2ate $ 4.$$ "pplied overhead! Fstimated hours 2ate "pplied overhead Fstimated costs $ 18,$$$ 45. /nder the 0e"ised /niform >imited !artnership Act) %hich of the follo%ing statements is correct regarding limited partnerships, a. >imited partners may lose limited liability if they participate in management activities. b. >imited partnerships may legally e-ist ithout filing a certificate of limited partnership. c. >imited partners have the same rights, responsibilities, and authority as general partners. d. >imited partners may contribute cash only and may not contribute services as their capital contributions. 'hoice DaD is correct. " limited partner must not participate in management or he can lose his limited liability status. 46. $hich of the follo%ing is not a basic approach to allocating costs for costing in"entory in ?oint=cost situations, a. #ales value at split<off. b. ;le-ible budget amounts. c. Physical measures such as eights or volume. d. 'onstant gross margin percentage net realiBable value method. 3,$$$ - $ 4.$$ 8,$$$

'hoice DbD is correct. Ooint costs ill most li?ely be allocated based upon relative unit volume, relative sales value at split off, or net realiBable value. ;le-ible budget amounts are not used to allocate @oint costs

47. A company has t%o di"isions. i"ision A has operating income of $800 and net assets of $<)000. i"ision & has operating income of $400 and net assets of $<)E00. The re4uired rate of return for the company is <0%. i"ision &'s residual income %ould be %hich of the follo%ing amounts, 'hoice DbD is correct. The formula for residual income is as follo s! Hivision , net income Cet boo? value Jurdle rate 2equired return 2esidual income $ 4$$ $1,.$$ - 1$% 1.$ $ 34$

48. The management of a company %ould do %hich of the follo%ing to compare and contrast its financial information to published information reflecting optimal amounts, a. &udget. b. ;orecast. c. ,enchmar?. d. :tiliBe best practices. Choice DcD is correct. ,enchmar?ing ould be used by a company in comparing its financial data to published information to determine if optimal. ,enchmar?ing is the process often used to identify standards that define or quantify critical success factors. 49. $eighted=a"erage and first in) first out 95*5F; e4ui"alent units %ould be the same in a period %hen %hich of the follo%ing occurs, 'hoice DaD is correct. ;/;E and eighted average produce the same equivalent units hen there is no beginning inventory. ;/;E is a three<step process, hile eighted average is a t o<step process. The ma@or difference bet een the t o methods is consideration of beginning inventory amounts by ;/;E. 50. &acchus) *nc. is a large multinational corporation %ith "arious business units around the %orld. After a fire destroyed the corporate head4uarters and largest manufacturing site) plans for %hich of the follo%ing %ould help &acchus ensure a timely reco"ery, a. Haily bac?up. b. Cet or? security. c. ,usiness continuity. d. ,ac?up po er. 'hoice DcD is correct. " business continuity plan is broader than a disaster recovery plan. /t provides for continuation of the business, not @ust for recovery of the computer processing. 5e can quibble ith the idea that these plans ill DensureD a timely recovery, but there ill not be a timely recovery ithout such plans.

2008 AICPA Released Questions - Business 1. $hich of the follo%ing statement9s; is9are; true regarding the relationship bet%een absorption costing net income and "ariable costing income, /. 5hen production e-ceeds sales, variable costing income e-ceeds absorption costing net income. //. 5hen sales e-ceed production, absorption costing income e-ceeds variable costing net income. a. / only. b. // only. c. ,oth / and //. d. Ceither / nor //. 'hoice DdD is correct. Ceither / nor // are correct. 5hen production e-ceeds sales, inventory increases. "s inventory increases, net income under absorption costing benefits from fi-ed manufacturing overhead that is recorded in inventory instead of recogniBed in cost of goods sold. 4ariable costing, ho ever, bears the full cost of all fi-ed costs. 4ariable costing is less than absorption costing hen inventory increased. 'onversely, hen sales e-ceeds production, inventory fall. "s inventory falls, net income under absorption costing is reduced by cost of goods sold that includes fi-ed manufacturing overhead from prior periods that had been recorded in inventory. "bsorption costing net income is less than variable costing net income. 2. $hich of the follo%ing statements is 9are; correct regarding corporate debt and e4uity securities, /. ,oth debt and equity security holders have an o nership interest in the corporation. //. ,oth debt and equity securities have an obligation to pay income. a. / only. b. // only. c. ,oth / and //. d. Ceither / nor //. 'hoice DdD is correct. Ceither / nor // is correct. Fquity security holders have o nership interest hile debt holders do not. Hebt obligations require a periodic interest payment hile equity securities only pay income to their holders hen dividends are declared at the discretion of the ,oard of Hirectors. 3. :elected information concerning the operations of a company for the year ended ecember (< is as follo%s: :nits produced :nits sold Hirect materials used Hirect labor incurred ;i-ed factory overhead 4ariable factory overhead ;i-ed selling and administrative e-penses 4ariable selling and administrative e-penses 3$,$$$ 18,$$$ $8$,$$$ $4$,$$$ $6$,$$$ $34,$$$ $.$,$$$ $),$$$

5or?<in<process inventories at the beginning and end of the year ere Bero. 5hat as the companyAs finished goods inventory cost at Hecember 31 under the variable (direct* costing method& 'hoice DdD is correct. The ending finished goods inventory computed using direct costing is calculated by allocating the total costs capitaliBed in inventory under direct costing (variable costs* to ending inventory as follo s! Hirect 9aterial 8$,$$$ Hirect >abor 4$,$$$ 4ariable ;actory Everhead 34,$$$ Total Production 144,$$$ 3$,$$$ 0 $8.3$ Fnding /nventory (3$,$$$ < 18,$$$* - 3,$$$ Fnding /nventory 14.4$$ 4. $hich of the follo%ing circumstances may permit the piercing of the corporate "eil of a closely held corporation and thus may cause its shareholders to be held personally liable,

/. The corporation is thinly capitaliBed. //. The corporation borro s money from a shareholder in corporate assets

ithout giving the shareholder a security interest

Enly / is a correct statement. The corporate veil of limited liability may be pierced and the personal assets of the shareholders may be reached to satisfy corporate obligations if the corporation as inadequately (thinly* capitaliBed at the time of its formation. //., ho ever, is incorrect. That a shareholder has corporation has borro ed money from a shareholder and not given the shareholder security is not a ground for piercing. 5. The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is 2no%n as: a. The clean hands doctrine. b. The full disclosure rule. c. The responsible person doctrine. d. The business @udgment rule. 'hoice DdD is correct. /f a director acts in good faith and in a manner the director believes is in the best interest of the corporation, and the director e-ercises the care that a reasonably prudent person ould e-ercise in a similar position, the director is protected against liability for decisions the director ma?es that turn out poorly for the corporation. This is commonly ?no n as the business @udgment rule. 6. $hat type of business organi.ation may generally be formed %ithout filing an organi.ational document or certificate %ith a state go"ernment agency or office, a. " corporation. b. " limited liability company. c. " general partnership. d. " limited partnership. 'hoice DcD is correct. " general partnership may be formed ithout filing any organiBational documents ith the state. "ll that is needed to form a partnership is an agreement bet een at least t o competent persons to carry on as co<o ners a business for profit. 7. $hich of the follo%ing is usually a benefit of using electronic funds transfer for international cash transactions, a. 'reation of multilingual disaster recovery plans. b. 2eduction in the frequency of data entry errors. c. Eff<site storage of foreign source documents. d. /mprovement in the audit trail for cash transactions. 'hoice DbD is correct. F;T (electronic funds transfers*, either international or non<international, ill normally result in reduced data entry errors because the data transfers are system<to<system transfers ith less data entry and thus fe er DpeopleD errors. 8. $hich of the follo%ing acts is most li2ely to cause a court to pierce the corporate "eil, a. ;ailure to designate a registered agent in the articles of incorporation ('harter*. b. 2etention of e-cess capital. c. ;ailure to conduct a significant portion of business in the chartering state. d. :sing corporate assets for the o nerAs personal purposes. 'hoice DdD is correct. The corporate veil of limited liability may be pierced and the personal assets of the shareholders may be reached to satisfy corporate obligations if the shareholder commingles personal assets ith his o n. This includes using corporate assets to pay personal debts. 9. (Adapted) $hat business entity can be "oluntarily dissol"ed and terminated only by filing a dissolution document %ith the state of organi.ation, 'hoice DaD is correct. 4oluntary dissolution of a corporation requires the filing of articles of dissolution ith the state.

10. -acGue #o. plans to produce +00)000 pairs of roller s2ates during -anuary of ne't year. !lanned production for 5ebruary is +80)000 pairs. :ales are forecasted at <80)000 pairs for -anuary and +40)000 pairs for 5ebruary. 3ach pair of roller s2ates has eight %heels. -acGue's policy is to maintain <0% of the ne't month's production in in"entory at the end of a month. Do% many %heels should -acGue purchase during -anuary, 'hoice DdD is correct. OacPue should anticipate purchasing 1,.4$,$$$ heels in Oanuary. OacPue ould purchase enough heels for 3$$,$$$ s?ates planned for production as ad@usted for 3$,$$$ already on hand in anticipation of Oanuary production plus 36,$$$ purchased in anticipation of ;ebruary production as follo s! Oanuary production (s?ates* 3$$,$$$

>ess beginning inventory (1$% - 3$$,$$$* Plus ending inventory (1$% - 36$,$$$* Oanuary purchases 5heels per s?ate Total Oanuary purchases

(3$,$$$* 36,$$$ 3$6,$$$ -8 1..4$.$$$

11. The follo%ing information is a"ailable on #rain #o.'s t%o product lines: #ales 4ariable costs 'ontribution margin ;i-ed costs! "voidable :navoidable Eperating income (loss* #hairs $18$,$$$ ().,$$$* 84,$$$ (3.,$$$* (18,$$$* $3$,$$$ Tables $48,$$$ (3$,$$$* 18,$$$ (13,$$$* (1$,8$$* ($4,8$$*

"ssuming the tables line is discontinued, and the factory space previously used to ma?e tables is rented for $34,$$$ per year, operating income ill increase by hat amount& 'hoice DbD is correct. The elimination of the tables line ill eliminate unavoidable costs to the e-tent that they do not produce an operating loss. The rental income net of the reduced costs is the amount by hich operating income ill increase computed as follo s! 2ental income Tables line unavoidable costs Eperating loss :nabsorbed costs /ncrease in net income 34,$$$ 1$,8$$ 4,8$$ ( .,$$$* 18,$$$

12. $hich of the follo%ing decision=ma2ing models e4uates the initial in"estment %ith the present "alue of the future cash inflo%s, a. "ccounting rate of return. b. Paybac? period. c. /nternal rate of return. d. 'ost<benefit ratio. 'hoice DcD is correct. The internal rate of return method computes the rate of return here net present value equals Bero. The method equates the initial investment ith the present value of the future cash inflo s. 13. Dughes and &rody start a business as a closely=held corporation. Dughes o%ns 8< of the <00 shares of stoc2 issued by the firm and &rody o%ns 49. Fne year later) the corporation decides to sell another +00 shares. $hich of the follo%ing types of rights %ould gi"e Dughes and &rody a preference o"er other purchasers to buy shares to maintain control of the firm, a. #hareholder derivative rights. b. Pre<emptive rights. c. 'umulative voting rights. d. /nspection rights. 'hoice DbD is correct. The right to purchase ne o nership is ?no n as a pre<emptive right. issuances of additional stoc? in order to maintain current proportional

14. $hich of the follo%ing listings correctly describes the order in %hich the four types of budgets must be prepared, a. Production, direct materials purchases, sales, cash disbursements. b. #ales, production, direct materials purchases, cash disbursements. c. 'ash disbursements, direct materials purchases, production, sales. d. #ales, direct materials purchases, production, cash disbursements. 'hoice DbD is correct. The order of budget preparation begins ith the sales budget hich logically drives the production budget (to support sales*, hich, in turn, drives the direct materials purchases (to support production* from hich the cash disbursements budget is derived.

15. $hich of the follo%ing statements is correct regarding financial decision ma2ing, a. Epportunity cost is recorded as a normal business e-pense. b. The accounting rate of return considers the time value of money. c. " strength of the paybac? method is that it is based on profitability. d. 'apital budgeting is based on predictions of an uncertain future. 'hoice DdD is correct. 'apital budgeting involves the managementAs evaluation of an uncertain future since it involves long term commitments for asset acquisition and, often involves long term financing decisions as ell. 9anagementAs decisions on the increased requirement for capital investment and the required return and the cost of capital require evaluation of an uncertain future. 'hoice DaD is incorrect. Epportunity cost, hile relevant in decision ma?ing, is not recorded as a normal business e-pense. 'hoice DbD is incorrect. The accounting rate of return is based on +""P basis net income and not cash flo s and does not consider the time value of money. 'hoice DcD is incorrect. The paybac? method measures ris? (return of capital*. " significant ea?ness of the paybac? method is that it does not consider profitability. 16. A company purchases an item for $4()000. The sal"age "alue of the item is $()000. The cost of capital is 8%. !ertinent information related to this purchase is as follo%s: Iear 1 Iear 3 Iear 3 Iear 4 Bet cash flo%s $1$,$$$ 16,$$$ 3$,$$$ 38,$$$ !resent "alue factor at 8% $.)3. $.868 $.8)4 $.836 isc. #5Hs )3.$ 13866 1688$ 1)846 #umulati"e )3.$ 33116 38))6 6884$

$hat is the discounted paybac2 period in years, 'hoice DbD is correct. The discounted paybac? period of 3.36 years is computed as follo s! The cumulative paybac? after three years is $38,))6. The portion of the fourth year needed to fully pay bac? the investment is computed as the ratio of the amount remaining to be recovered to the amount collected in the fourth year as follo s! (43,$$$ Q 38,)66* 1),846 0 .363 The discounted paybac? period is, therefore! Iears 1Q3 Iear 4 Total 3.$$ years .36 years 3.36 years

17. $hat is an internal rate of return, a. " net present value. b. "n accounting rate of return. c. " paybac? period e-pected from an investment. d. " time<ad@usted rate of return from an investment. 'hoice DdD is correct. The internal rate of return is one of many capital budgeting techniques that utiliBe present value concepts to value both the investment and the related cash flo s. These methods are generally referred to as using a time ad@usted rate of return.

18. 5or the current period production le"els) $ood%or2 #o. budgeted <<)000 board feet of production and purchased <8)000 board feet. The material cost %as budgeted at $@ per foot. The actual cost for the period %as $8.80 per foot. $hat %as $ood%or2's material price "ariance for the period, 'hoice DdD is correct. 5ood or? 'o. e-perienced a $33,6$$ unfavorable direct materials price variance for the current period. The materials price variance formula calculates out as follo s! 9aterials price variance 0 "ctual Guantity - ("ctual < #tandard Price* 9aterials price variance 0 16,$$$ - (8.6$ < 8.$$* 9aterials price variance 0 (33,6$$* The materials price variance is unfavorable since e spent more than standard. The trough method is computed as follo s! "ctual Guantity "ctual Price 16,$$$ - $8.6$ 0 $138,6$$ Price 4ariance (33,6$$* "ctual Guantity #tandard Price 16,$$$ - $8.$$ 0 $1$6,$$$

19. :nyder #o. manufactures fans %ith direct material costs of $<0 per unit and direct labor of $@ per unit. A local carrier charges :nyder $8 per unit to ma2e deli"eries. :ales commissions are paid at <0% of the selling price. 5ans are sold for $<00 each. *ndirect factory costs and administrati"e costs are $E)800 and $(@)+00 per month) respecti"ely. Do% many fans must :nyder produce to brea2 e"en, 'hoice DbD is correct. The brea? even point in units (fans* is computed as fi-ed costs divided by contribution margin per unit. 'ontribution margin is computed as the difference bet een selling price and variable costs. 4ariable costs are comprised of the follo ing! Hirect material 1$.$$ Hirect labor 8.$$ Helivery charges 6.$$ 'ommission ($1$$ - 1$%* 1$.$$ Total 33.$$ 'ontribution margin 0 $1$$ < $33.$$ 0 $.8.$$ ;i-ed costs are comprised of the follo ing! /ndirect factory costs "dministrative costs Total $ .,8$$ 38,3$$ $44,$$$

,rea?even point in units is computed as follo s! ;' $44,$$$ '9 per unit .8 ;ans 64 20. The difference bet%een standard hours at standard %age rates and actual hours at standard %age rates is referred to as %hich of the follo%ing types of "ariances, a. >abor rate. b. >abor usage. c. Hirect labor spending. d. /ndirect labor spending. !olution" Rule" The t o< ay direct labor variances are computed as follo s! "ctual Jours "ctual Jours #tandard Jours - "ctual 2ate - #tandard 2ate - #tandard 2ate 2ate 4ariance :sageNFfficiency

'hoice DbD is correct. The difference bet een standard hours at standard the labor usageN efficiency variance

age rates and actual hours at standard rates is

21. $hich of the follo%ing e"ents %ould decrease the internal rate of return of a proposed asset purchase, a. Hecrease ta- credits on the asset. b. Hecrease related or?ing capital requirements. c. #horten the paybac? period. d. :se accelerated, instead of straight<line depreciation. !olution" Rule" The internal rate of return is computed as follo s! /nvestmentN'ash ;lo s 0 Present 4alue ;actor The higher the present value factor, the lo er the computed rate (internal rate of return*. /ncreases to the investment or decreases to the cash flo s serve to increase the present value factor. 'hoice DaD is correct. " decrease in ta- credits associated ith an asset ould increase the initial investment, that increase ould cause the present value to increase and ould cause the resulting rate, internal rate of return, to decline. 22. (Adapted) $hich of the follo%ing changes %ould result in the highest present "alue for a series of cash flo%s, a. " $1$$ decrease in ta-es each year for four years. b. " $1$$ decrease in the cash outflo each year for three years. c. " $1$$ increase in disposal value at the end of four years. d. " $1$$ increase in cash inflo each year for three years. 'hoice DaD is correct. " decrease in ta-es for each year for four years causes the greatest increases in cash flo therefore, present value of any of the alternatives. and,

23. $hich of the follo%ing internal control procedures %ould pre"ent an employee from being paid an inappropriate hourly %age, a. Javing the supervisor of the data entry cler? verify that each employeeAs hours or?ed are correctly entered into the system. b. :sing real<time posting of payroll so there can be no after<the<fact data manipulation of the payroll register. c. +iving payroll data entry cler?s the ability to change any suspicious hourly pay rates to a reasonable rate. d. >imiting access to employee master files to authoriBed employees in the personnel department. 'hoice DdD is correct. >imiting access to employee master files to authoriBed employees in the personnel department ill minimiBe the entry of and thus the processing ith an inappropriate hourly age (rate*. 24. A&#) *nc. assessed o"erall ris2s of 1*: systems pro?ects on t%o standard criteria: technology used and design structure. The follo%ing systems pro?ects ha"e been assessed on these ris2 criteria. $hich of the follo%ing pro?ects holds the highest ris2 to A&#, Technology :tructure a. 'urrent #?etchy b. Ce #?etchy c. 'urrent 5ell defined d. Ce 5ell defined 'hoice DbD is correct. "lthough it is not completely clear hat Ddesign structureD means, the use of the ord Ds?etchyD gives the ans er a ay. The question is as?ing about the highest ris?. 'ertainly a ne technology and a s?etchy design structure ould present the highest ris?. This question really does not require any real ?no ledge of /T, @ust a little common sense. 25. A lender and a borro%er signed a contract for a $<)000 loan for one year. The lender as2ed the borro%er to pay (% interest. *nflation occurred and prices rose by +% o"er the ne't year. The borro%er repaid $<)0(0. $hat is the amount %orth in real terms) after inflation, 'hoice DdD is correct. The $1,$3$ amount repaid is readily ad@usted for the 3% inflation by dividing it by a factor of 1.$3 ($1,$3$ N 1.$3 0 $1$$).8$*, hich is 1 plus the 3% inflation rate. 26. $hich of the follo%ing is an ad"antage of net present "alue modeling, a. /t is measured in time, not dollars.

b. /t uses accrual basis, not cash basis accounting for a pro@ect. c. /t uses the accounting rate of return. d. /t accounts for compounding of returns. 'hoice DdD is correct. The net present value method assumes that positive cash flo s are reinvested at the hurdle rate thereby considering compounding. 27. $hich of the follo%ing indi"iduals %ould be most hurt by an unanticipated increase in inflation, a. " retiree living on a fi-ed income. b. " borro er hose debt has a fi-ed interest rate. c. " union or?er hose contract includes a provision for regular cost<of<living ad@ustments. d. " saver hose savings as placed in a variable rate savings account. 'hoice DaD is correct. /nflation is the sustained increase in the general price of goods and services. " retiree living on a fi-ed income ould be most hurt by an unanticipated increase in inflation because the retireeAs income ould not increase to offset the effects of the inflation. 28. An accounts payable cler2 is accused of ma2ing unauthori.ed changes to pre"ious payments to a "endor. !roof could be unco"ered in %hich of the follo%ing places, a. Transaction logs. b. Frror reports. c. Frror files. d. 4alidated data file. 'hoice DaD is correct. Transaction logs ould reflect transactions, including payments made to a vendor, hether those payments ere current or previous payments. "lthough this choice is the one selected by the e-aminers, a good argument can be made for choice DdD also. Hepending on the amount of audit trail information included ith the transactions, a transaction log and a validated data file could be almost identical. 29. A client %ants to 2no% ho% many years it %ill ta2e before the accumulated cash flo%s from an in"estment e'ceed the initial in"estment) %ithout ta2ing the time "alue of money into account. $hich of the follo%ing financial models should be used, a. Paybac? period. b. Hiscounted paybac? period. c. /nternal rate of return. d. Cet present value. 'hoice DaD is correct. The paybac? method typically ignores the time value of money and computes the number of years it ill ta?e for cash flo s to equal (pay bac?* the initial investment. 30. *f the dollar price of the euro rises) %hich of the follo%ing %ill occur, a. The dollar depreciates against the euro. b. The euro depreciates against the dollar. c. The euro ill buy fe er Furopean goods. d. The euro ill buy fe er :.#. goods. 'hoice DaD is correct. ;oreign currencies are li?e anything else! the value of a currency can go up or do n. /f the dollar price of the euro rises, then the euro is getting more e-pensive. That means that the dollar is getting less e-pensive. "nother ay to say the same thing is that the dollar is depreciating against the euro. 31. The calculation of depreciation is used in the determination of the net present "alue of an in"estment for %hich of the follo%ing reasons, a. The decline in the value of the investment should be reflected in the determination of net present value. b. Hepreciation ad@usts the boo? value of the investment. c. Hepreciation represents cash outflo that must be added bac? to net income. d. Hepreciation increases cash flo by reducing income ta-es. 'hoice DdD is correct. "lthough depreciation is not directly relevant to net present value computations, the depreciation tashield (reduced income ta-es* results in increased cash flo s from an investment and is used in the determination of net present value. 32. $hich of the follo%ing is a characteristic of a fle'ible budget, a. Provides budgeted numbers for various activity levels.

b. "llo s for modification during the budgeted period. c. /solates the impact of variable costs on the overall budget. d. 'an be utiliBed by several product divisions. 'hoice DaD is correct. " fle-ible budget ad@usts the budget amounts for different levels of activity. The fle-ible budget identifies volume components of variances from planned activity. 33. $ilson and Thomas are partners. $ilson contributed $<80)000 to the partnership) and Thomas contributed $80)000. $ilson does 40% of the %or2) and Thomas does E0%. They do not ha"e a partnership agreement that addresses the sharing of profits and losses. &y the end of the year) the partnership has earned a profit of $+00)000. $hat is $ilson's share of the profit under the 0e"ised /niform !artnership Act, 'hoice DbD is correct. /n a general partnership, absent an agreement to the contrary, partnersA share equally in profits regardless of ho much or? they perform on behalf of the partnership and regardless of the relative amounts of contributions to capital made by each partner. Jere, the partnership earned a $3$$,$$$ profit and there ere t o partners. Thus, each is entitled to $1$$,$$$. 34. A fast=gro%ing ser"ice company is de"eloping its information technology internally. $hat is the first step in the company's systems de"elopment life cycle, a. "nalysis. b. /mplementation. c. Testing. d. Hesign. 'hoice DaD is correct. This question requires (and can be ans ered ith* some common sense, even if you donAt ?no hat a system development life cycle is. /t is more than reasonable to assume that "nalysis precedes everything else (although users sometimes feel, hen they do not li?e the results of a ne system, that no analysis of any ?ind has been done*. "nalysis is determining hat the ne system should do. /t is sometimes called the gathering of system requirements. The steps are "nalysis, Hesign, Testing, and /mplementation. 35. $hich of the follo%ing best describes a hot site, a. >ocation ithin the company that is most vulnerable to a disaster. b. >ocation here a company can install data processing equipment on short notice. c. >ocation that is equipped ith a redundant hard are and soft are configuration. d. >ocation that is considered too close to a potential disaster area. 'hoice DcD is correct. 5hile an argument may be made about the ord Dredundant,D this choice is the only one that even comes close to being correct. " hot site ill have hard are that, at the very least, can be configured to be the same as the company is using in its normal operations and system soft are that can similarly configured (not to forget a ay for the companyAs telecommunications net or? to be connected to the hot site*. The company ill normally provide its o n application soft are. 36. $hich of the follo%ing attributes of a management report has the greatest impact on management's ability to ma2e effecti"e decisions, a. #ummariBation. b. F-ception orientation. c. 2elevance. d. 'onciseness. 'hoice DcD is correct. 2elevance defines that quality of data and information that ma?es a difference in decision ma?ing. 2elevance has the greatest impact on managementAs ability to ma?e effective decisions. 37. A company's controller is ad?usting ne't year's budget to reflect the impact of an e'pected 8% inflation rate. >isted belo% are selected items from ne't year's budget before the ad?ustment: Total salaries e-pense Jealth costs Hepreciation e-pense /nterest e-pense on 1$<year fi-ed<rate notes $36$,$$$ 1$$,$$$ .6,$$$ 38,86$

After ad?usting for the 8% inflation rate) %hat is the company's total budget for the selected items before ta'es for ne't year, 'hoice DaD is correct. " 6% inflation rate ould impact salary and health care costs but ould not impact depreciation e-pense (based on historical cost* and ould not impact interest e-pense (fi-ed based on amortiBation schedule. The budget ould be computed as follo s!

#alaries e-pense $36$,$$$ - 1.$6 0 Jealth costs 1$$,$$$ - 1.$6 0 Hepreciation e-pense .6,$$$ - 1.$$ 0 /nterest e-pense on 1$<year fi-ed<rate notes 38,86$ - 1.$$ 0 #otal Bud$et

$3.3,6$$ 1$6,$$$ .6,$$$ 38,86$ $4 0%250

38. #ompared to online real=time processing) batch processing has %hich of the follo%ing disad"antages, a. " greater level of control is necessary. b. "dditional computing resources are required. c. "dditional personnel are required. d. #tored data are current only after the update process. 'hoice DdD is correct. This choice is the only choice hich is even remotely close to being correct. ,atch processing means that transactions are processed in batches on a periodic basis. ,ecause the transactions are processed on a periodic basis, the data that is being updated ill not necessarily be DcurrentD at any time other than @ust after the update. 39. An economy is at the pea2 of the business cycle. $hich of the follo%ing policy pac2ages is the most effecti"e %ay to dampen the economy and pre"ent inflation, a. /ncrease government spending, reduce ta-es, increase money supply, and reduce interest rates. b. 2educe government spending, increase ta-es, increase money supply, and increase interest rates. c. 2educe government spending, increase ta-es, reduce money supply, and increase interest rates. d. 2educe government spending, reduce ta-es, reduce money supply, and reduce interest rates. 'hoice DcD is correct. The economy can be dampened by reducing government spending and by increasing ta-es (thus giving consumers less money to spend*, both of hich are fiscal policy. The economy can also be dampened by reducing the money supply (thus effectively increasing prices* and increasing interest rates (thus giving consumers less money to spend because they are spending more money on interest*, both of hich are monetary policy. 40. $hich of the follo%ing strategies %ould the 5ederal 0eser"e most li2ely pursue under an e'pansionary policy, a. Purchase federal securities and lo er the discount rate. b. 2educe the reserve requirement hile raising the discount rate. c. 2aise the reserve requirement and lo er the discount rate. d. 2aise the reserve requirement and raise the discount rate. 'hoice DaD is correct. :nder an e-pansionary policy, the ;ed ould most li?ely purchase federal securities. /t ill pay for the securities by providing money, hich ill e-pand the economy. 41. $hich of the follo%ing represents the procedure managers use to identify %hether the company has information that unauthori.ed indi"iduals %ant) ho% these indi"iduals could obtain the information) the "alue of the information) and the probability of unauthori.ed access occurring, a. Hisaster recovery plan assessment. b. #ystems assessment. c. 2is? assessment. d. Test of controls. 'hoice DcD is correct. The first step in ris? assessment is to identify the ris?s. The question is as?ing about the ris? of unauthoriBed access to information. The steps ould certainly be to identify hether the company has information that unauthoriBed individuals might ant (and hat company does not have such information*, the value of the information, ho those individuals could obtain the information, and the probability of unauthoriBed access occurring. The steps here are not necessarily the same order as in the question7 regardless, it is ris? assessment. 42. A "alue=added net%or2 9AAB; is a pri"ately o%ned net%or2 that performs %hich of the follo%ing functions, a. 2oute data transactions bet een trading partners. b. 2oute data ithin a companyAs multiple net or?s. c. Provide additional accuracy for data transmissions. d. Provide services to send mar?eting data to customers. 'hoice DaD is correct. 4"Cs are often used to route data transactions bet een trading partners.

43. The &usiness -udgment 0ule is a rule that immuni.es corporate: a. 9anagement from liability for actions that result in corporate losses or damages if the actions are underta?en in good faith but are not ithin the po er of the corporation or the authority of management to ma?e. b. 9anagement from liability for actions that result in corporate losses or damages if the actions are underta?en in good faith and are ithin both the po er of the corporation and the authority of management to ma?e. c. #hareholders from liability for actions that result in corporate losses or damages if the actions are underta?en in good faith and are ithin both the po er of the corporation and the authority of shareholders to ma?e. d. #hareholders from liability for actions that result in corporate losses or damages if the actions are underta?en in good faith but are not ithin the po er of the corporation or the authority of shareholders to ma?e. 'hoice DbD is correct. :nder the business @udgment rule, a director is protected from liability for decisions made on behalf of the corporation if the director acts in good faith and in a manner that the director believes is in the best interest of the corporation, e-ercising the care that a reasonably prudent person ould e-ercise in a similar position. The action must also ostensibly be ithin the po er of the corporation to underta?e and ostensibly ithin the authority of management to ma?e. 44. A company uses a standard costing system. At the end of the current year) the company pro"ides the follo%ing o"erhead information: "ctual overhead incurred 4ariable $)$,$$$ ;i-ed $.3,$$$ ,udgeted fi-ed overhead $.6,$$$ 4ariable overhead rate (per H> hour* $8 #td hours allo ed for actual production 13,$$$ "ctual labor hours used 11,$$$ $hat amount is the "ariable o"erhead efficiency "ariance, 'hoice DaD is correct. The efficiency variance compares the amount of the variable overhead applied (at standard* to the amount of variable overhead that ould have been applied at actual. /f more as applied than ould have been incurred, the results are favorable. #tandard hours allo ed "pplication rate Total "ctual hours "pplication rate Total 4ariable efficiency variance 13,$$$ $8 ).,$$$ 11,$$$ - $8 (88,$$$* 8,$$$

45. - #o. has a ?ob=order cost system. The follo%ing debits 9credits; appeared in the $or2 in !rocess account for the month of 1arch: 9arch 1, balance $ 13,$$$ 9arch 31, direct materials 4$,$$$ 9arch 31, direct labor 3$,$$$ 9arch 31, manufacturing overhead applied 38,$$$ 9arch 31, to finished goods (1$$,$$$* - #o. applies o"erhead at a predetermined rate of 90% of direct labor cost. -ob Bo. <0<) the only ?ob still in process at the end of 1arch) has been charged %ith manufacturing o"erhead of $+)+80. $hat %as the amount of direct materials charged to -ob Bo. <0<, 'hoice DcD is correct. Hirect materials charged to @ob 1$1 is $4,36$. Oob 1$1 is the only incomplete @ob at the end of the month. ;irst compute the ending balance in 5/P for HO 'o. and note that the ending balance is the same as the ending balance for @ob 1$1. Ether facts allo us to bac? into the direct materials for the @ob. Total -ob <0< ,eg ,alance Hirect 9aterials 13,$$$ $ 4$,$$$

4,36$ (#queeBe*

Hirect >abor Everhead "pplied /ssued (1$$,$$$* $ Fnding ,alance

3$,$$$ 38,$$$ ),$$$

3,6$$ (3,36$ )$%* 3,36$ ),$$$

46. The o%ners of a limited liability company are 2no%n as %hich of the follo%ing, 'hoice DbD is correct. The o ners of a limited liability company are called members. 47. A&# #o. had debt %ith a mar2et "alue of $< million and an after=ta' cost of financing of 8%. A&# also had e4uity %ith a mar2et "alue of $+ million and a cost of e4uity capital of 9%. A&#'s %eighted=a"erage cost of capital %ould be: 'hoice DcD is correct. The eighted average cost of capital is computed as follo s! Hebt $1,$$$,$$$N$3,$$$,$$$ - 8.$% 0 3..8% Fquity $3,$$$,$$$N$3,$$$,$$$ - ).$% 0 ..$$% 5eighted "verage 'ost of 'apital 8..8% 48. $hich of the follo%ing is a 2ey difference in controls %hen changing from a manual system to a computer system, a. /nternal control principles change. b. /nternal control ob@ectives differ. c. 'ontrol ob@ectives are more difficult to achieve. d. 9ethodologies for implementing controls change. 'hoice DdD is correct. 5hen changing from a manual system to a computer system, the controls almost al ays are different. That does not mean that they are better or are orse, but they certainly are different. 49. 0ele"ant information for material A follo%s: Guantity purchased #tandard quantity allo ed "ctual price #tandard price .,6$$ lbs. .,$$$ lbs. $3.8$ $4.$$

$hat %as the direct material price "ariance for material A, 'hoice DaD is correct. 9aterial " e-perienced a $1,3$$ favorable direct materials price variance for the current period. The materials price variance formula calculates out as follo s! 9aterials price variance 0 "ctual Guantity - ("ctual Q #tandard Price* 9aterials price variance 0 .,6$$ - (3.8$ Q 4.$$* 9aterials price variance 0 (1.3$$* The materials price variance is favorable since e spent less than standard. The trough method is computed as follo s! "ctual Guantity - "ctual Guantity "ctual Price #tandard Price .,6$$ - $3.6$ 0 .,6$$ - $4.$$ 0 $34,8$$ $3.,$$$ Price 4ariance 0 1,3$$ 50. 0ele"ant information for product A follo%s: "ctual variable overhead cost per hour #tandard variable overhead cost per hour "ctual hours #tandard hours $8.$$ $8.6$ 4,6$$ 6,$$$

$hat %as the "ariable o"erhead spending "ariance for product A, "ctual hours "pplication rate Total "ctual "ctual hours 4,6$$ - $8 (3.,$$$* 4,6$$

"pplication rate Total "ctual R #td :nfavorable 4ariable efficiency variance

- 8.6$ 33,86$ (3,36$*