CPA Core 1 Exam Questions with
Complete Solutions.
What is a statutory audit? - Answer an audit required by law or governing body
what do financial statement audits do to agency cost - Answer increase them
why are substantive procedures needed in both substantive and combined audits? - Answer
control testing alone doesn’t sufficiently address material misstatement risk
what is the best audit approach for a company with few transactions? - Answer substantive
if audit, inherent, and control risk are low, and detection risk is high, how does that effect
substantive tests - Answer the number of tests required is low
under IFRS, how are borrowing costs treated? - Answer capitalized
under ASPE, how are borrowing costs treated? - Answer capitalized or expensed
how does the units of production method of depreciation work? - Answer costs are allocated
based on the proportion of capacity used
how does IFRS treat title search? - Answer capitalized to the cost of land
how does elimination method work? - Answer Eliminate the the depreciation from prior year
the accumulated depreciation is reset back to zero
eliminates the duplicate entries from intercompany transactions
what happens when an impaired asset recovers its value? - Answer nothing - impairment costs
arent reversed
Under ASPE, how is impairment calculated - Answer if the carrying value is less than the
undiscounted future net cashflows associated with the equipment, impairment is calculated as
the carrying value minus the current FMV
, if the buyer has the right to return the goods how do you recognize revenue? - Answer if no
reasonable estimate of future returns can be made, no revenue can be recognized
for FOB shipping terms, when is revenue recognized? - Answer when items are shipped to the
customer
how are changes in accounting estimates treated? - Answer prospectively
what is the benefit of conducting an analysis of company financials? - Answer provides context
into a company's financial state
what ratio says if a company is able to pay off its short term debts - Answer quick ratio
(Current assets-inventory)/liabilities
what type of qualitative factor is a high debt to equity ratio - Answer negative qualitative
factor
what does redeeming term deposits do? - Answer increase in cash
How is inventory turnover calculated? - Answer COGS/Average Inventory
average inventory = (beginning inventory-closing)/2
what impact does selling fixed assets to reduce accounts payable do to the quick ratio? - Answer
improves it
what does the debt to equity ratio tell you? - Answer the ability of the company to obtain
additional financing through the use of financial leverage
what is allowance for doubtful accounts? - Answer the amount of gross accounts receivable
that you assume to be unrecoverable
when do term deposits have to mature by to be considered cash and cash equivilants? - Answer
180 days
Complete Solutions.
What is a statutory audit? - Answer an audit required by law or governing body
what do financial statement audits do to agency cost - Answer increase them
why are substantive procedures needed in both substantive and combined audits? - Answer
control testing alone doesn’t sufficiently address material misstatement risk
what is the best audit approach for a company with few transactions? - Answer substantive
if audit, inherent, and control risk are low, and detection risk is high, how does that effect
substantive tests - Answer the number of tests required is low
under IFRS, how are borrowing costs treated? - Answer capitalized
under ASPE, how are borrowing costs treated? - Answer capitalized or expensed
how does the units of production method of depreciation work? - Answer costs are allocated
based on the proportion of capacity used
how does IFRS treat title search? - Answer capitalized to the cost of land
how does elimination method work? - Answer Eliminate the the depreciation from prior year
the accumulated depreciation is reset back to zero
eliminates the duplicate entries from intercompany transactions
what happens when an impaired asset recovers its value? - Answer nothing - impairment costs
arent reversed
Under ASPE, how is impairment calculated - Answer if the carrying value is less than the
undiscounted future net cashflows associated with the equipment, impairment is calculated as
the carrying value minus the current FMV
, if the buyer has the right to return the goods how do you recognize revenue? - Answer if no
reasonable estimate of future returns can be made, no revenue can be recognized
for FOB shipping terms, when is revenue recognized? - Answer when items are shipped to the
customer
how are changes in accounting estimates treated? - Answer prospectively
what is the benefit of conducting an analysis of company financials? - Answer provides context
into a company's financial state
what ratio says if a company is able to pay off its short term debts - Answer quick ratio
(Current assets-inventory)/liabilities
what type of qualitative factor is a high debt to equity ratio - Answer negative qualitative
factor
what does redeeming term deposits do? - Answer increase in cash
How is inventory turnover calculated? - Answer COGS/Average Inventory
average inventory = (beginning inventory-closing)/2
what impact does selling fixed assets to reduce accounts payable do to the quick ratio? - Answer
improves it
what does the debt to equity ratio tell you? - Answer the ability of the company to obtain
additional financing through the use of financial leverage
what is allowance for doubtful accounts? - Answer the amount of gross accounts receivable
that you assume to be unrecoverable
when do term deposits have to mature by to be considered cash and cash equivilants? - Answer
180 days
