NCPAR Sample Review Questions

Question 18 (AT): Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed? a. The investment committee of the board of directors periodically reviews the investment decisions delegated to the treasurer. b. The internal auditor and the controller independently trace all purchases and sales of marketable securities from the subsidiary ledgers to the general ledger. c. Two company officials have joint control of marketable securities, which are kept in a bank safe deposit box. d. The chairman of the board verifies the marketable securities, which are kept in a bank safe-deposit box, each year on the balance sheet date. Question 17 (AT): Which of the following is a control procedure that most likely could help prevent employee payroll fraud? a. Employees who distribute payroll checks forward unclaimed payroll checks to the absent employees' supervisors. b. Salary rates resulting from new hires are approved by the payroll supervisor. c. The personnel department promptly sends employee termination notices to the payroll supervisor. d. Total hours used for determination of gross pay are calculated by the payroll supervisor.

Question 16 (AT): An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA’s auditing procedures when the internal auditor's work relates to assertions about the a. Existence of fixed asset additions. b. Existence of contingencies. c. Valuation of intangible assets. d. Valuation of related party transactions. Question 15 (AT): Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? a. Prenumbered remittance advices. b. Monthly bank reconciliations. c. A bank lockbox system. d. Daily deposit of cash receipts. Question 14 (AT): The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the

a. Timing of inventory observation procedures to be performed. b. Evidence to be gathered to provide a sufficient basis for the auditor's opinion. c. Procedures to be undertaken to discover litigation, claims, and assessments. d. Pending legal matters to be included in the inquiry of the client's attorney. Question 13 (AT): Which of the following procedures would an auditor most likely perform in planning a financial statement audit? a. Inquiring of the client's legal counsel concerning pending litigation. b. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities. c. Comparing the financial statements to anticipated results. d. Examining computer generated exception reports to verify the effectiveness of internal controls. Question 12 (AT): Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the a. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. b. Internal auditor to investigate the listing for unusual transactions. c. Treasurer to compare the listing with the monthly bank statement. d. Entity's bank to compare the listing with the cashier's deposit slip. Question 11 (AT): Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? a. Accounts receivable. b. Treasurer. c. Credit. d. Accounts payable. Question 10 (AT): When assessing the internal auditors' competence, the independent CPA should obtain information about the a. Educational background and professional certification of the internal auditors. b. Organizational level to which the internal auditors report. c. Policies prohibiting the internal auditors from auditing areas where relatives are employed.

d. Internal auditors' access to records and information that is considered sensitive. Question 9 (AT): An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for a. Authorizing payroll rate changes for all employees. b. Examining authorization forms for new employees. c. Comparing payroll registers with original batch transmittal data. d. Hiring all subordinate payroll department employees. Question 8 (AT): An engagement is least likely to be accepted when? a. The predecessor auditor discloses that he was restricted by the client to make any disclosure of information surrounding the predecessor auditor’s withdrawal b. The predecessor auditor disclosed that his engagement was terminated with the client due to substantial independence threat c. The predecessor auditor disclosed that he assigned the task to the receiving accountant because of lack of staff to perform the engagement d. The predecessor auditor disclosed that there was misunderstanding on the nature of the engagement Question 7 (AT): Which of the following would be considered the most conservative settings for inherent risk and control risk? Inherent Risk Control Risk a. 1.0 1.0 b. 1.0 0.0 c. 0.0 0.0 d. 0.5 0.5 Correct. Answer is A. - (a) 1 times 1 equals 1; (b) 1 x 0 = 0; (c) 0 x 0 = 0; (d) .5 x .5 = .25

Question 65 (TOA): How is goodwill or gain from bargain purchase computed? a. The difference between the consideration transferred, including noncontrolling interest in the acquiree, and the acquisition-date fair value of net identifiable assets acquired. b. The difference between the purchase price and the acquisition-date fair value of net identifiable assets acquired. c. The difference between the sum of (a) consideration transferred; (b) noncontrolling interest in the acquiree; and (c) acquisition-date fair value of the

acquirer’s previously held equity interest in the acquiree; and the acquisition-date fair value of net identifiable assets acquired. d. The excess of the acquisition-date fair value of net identifiable assets acquired and there carrying amounts in the acquiree’s books. Note: (1) Consideration transferred + (2) Previously held equity interest + (3) NCI; minus FV of net identifiable assets acquired = Goodwill or Negative goodwill

Excess tax depreciation over depreciation used in financial reporting would result to what type of temporary difference and what type of deferred tax? Taxable Temporary Difference; Deferred Tax Liability

PFRS 3 (revised) requires what method to be used in accounting for business combinations? Acquisition method.

Question 5 (P2): The following information pertains to ABC Co.’s accounts: Account receivable – January 1, 20x1 CU100,000 Account receivable – December 31, 20x1 CU25,000 During the 20x1, an account with a balance of CU10,000 has defaulted, leaving ABC Co. no other alternative but to repossess the inventory sold. The inventory has a fair value of P12,000 as of repossession date. If ABC Co. uses the “installment method” in recognizing profit from its installment sales, how much is the realized gross profit assuming the gross profit rate on sales is 20%? a. 15,000 b. 13,000 c. 12,600 Question 4 (P2): The following information pertains to ABC Co.’s accounts as of year-end: Account receivable CU100,000 Deferred gross profit CU25,000 If ABC Co. uses the “installment method” in recognizing profit from its

installment sales, what is the gross profit rate based on sales? a. 25% b. 20% c. 80% Question 64 (TOA): In a reverse acquisition, the acquisition-date fair value of the consideration transferred by the accounting acquirer shall be measured a. as an amount based on the number of equity interests the legal subsidiary (accounting acquirer) would have had to issue to give the owners of the legal parent (accounting acquiree) the same percentage equity interest in the combined entity that results from the reverse acquisition. b. at cost rather than at fair value c. in a reverse fashion, that is by multiplying the shares by the fair value per share, rather than the fair value per share by the shares d. in a reverse fashion, that is by squeezing the consideration transferred starting with goodwill and fair value of net identifiable assets acquired. Under the direct valuation of goodwill method, using an "average earnings" approach would result to what amount? Consideration transferred or purchase price

Under the direct valuation of goodwill method, using an "excess earnings" approach would result to what amount? Goodwill

According to PFRS 3 (revised), how is a reacquired right that is favorable accounted for? Intangible asset

According to PFRS 3 (revised), how is goodwill from business combination computed? sum of consideration transferred, FV of NCI, FV of Prev Held Equity Interest; less FV of NA

Question 11 (P1): On January 1, a company issued a CU50,000 face value, 8% five-year bond for CU46,139 that will yield 10%. Interest is payable on June 30 and December 31. What is the bond carrying amount on December 31 of the current year?

a. CU46,139 b. CU46,446 c. CU46,768 d. CU47,106 Question 63 (TOA): At the beginning of the current year, SRV Co. sold equipment with a two-year service contract for a single payment of CU20,000. The fair value of the equipment was CU18,000. SRV recorded this transaction with a debit of CU20,000 to cash and a credit of CU20,000 to sales revenue. Which of the following statements is correct regarding SRV's current-year financial statements? a. The financial statements are correct. b. Net income will be overstated. c. Total assets will be overstated. d. Total liabilities will be overstated. Question 10 (P1): White Coffee Co. owns 40% of Black Coffee Co.'s common stock outstanding and 75% of Black Coffee's noncumulative preferred stock outstanding. White Coffee exercises significant influence over Black Coffee's operations. During the current period, Black Coffee declared dividends of CU200,000 on its common stock and CU100,000 on its noncumulative preferred stock. What amount of dividend income should White Coffee report on its income statement for the current period related to its investment in Black Coffee? a. CU75,000 b. CU80,000 c. CU120,000 d. CU225,000 *CU = currency units Question 9 (P1): A manufacturing firm purchased used equipment for 135,000. The original owners estimated that the residual value of the equipment was 10,000. The carrying amount of the equipment was 120,000 when ownership transferred. The new owners estimate that the expected remaining useful life of the equipment was 10 years, with a salvage value of 15,000. What amount represents the depreciable base used by the new owners? a. 105,000 b. 110,000

c. 120,000 d. 125,000