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CPA review BEC Quizzes

Module 40, 41, 44, 45

Module 40

Module 40 Q1
1.Internal control systems may breakdown for all of
the following reasons except:
A. Faulty judgments by personnel.
B. Management may override the control.
C. Controls may be improperly designed.
D. Controls can be circumvented by collusion.

Module 40 Q1 answer
A-B-D This response is incorrect. It is a possible
reason for a control breakdown.
C. Correct. Limitations assume that controls are
properly designed. Breakdown implies an existing
effective system.

Module 40 Q2
2. Each of the following is a limitation of enterprise
risk management (ERM) except:
A.ERM deals with risk, which is related to the
future and is inherently uncertain.
B.ERM operates at different levels with respect to
different objectives.
C.ERM can provide absolute assurance with
respect to objective categories.
D.ERM is as effective as the people responsible
for its functioning.

Module 40 Q2 answer
A.
B.

C.

D.

Incorrect. The uncertainty in forecasting the future is an important

limitation of ERM, and, therefore, this is not the correct answer to
this question.
Incorrect. ERM does operate at different levels with respect to
different objectives, as is clear in the COSO ERM framework.
Therefore, this is a limitation of ERM, and is not the correct
answer to this question.
Correct. While it is accurate to say that ERM can provide
reasonable levels of assurance, it cannot provide absolute
assurance with respect to risk management objectives.
Consequently, this is the correct answer to the question, because
this statement is false.
Incorrect. ERM is dependent upon the people responsible for its
functioning. Because this statement is true, and because this is a
limitation of ERM, this is not the correct answer to this question.

Module 40 Q3
3. A manufacturing firm noted that it would have
difficulty sourcing raw materials locally, so it
decided to relocate its production facilities.
According to COSO, this decision represents
which of the following responses to the risk?
A.Risk reduction
B.Prospect theory
C.Risk sharing
D.Risk acceptance

Module 40 Q3 answer
A.
B.

C.

D.

Correct. This best describes the risk management approach taken by the
firm. Specifically, because the firm cannot locally source its raw materials,
it is relocating its production facility to reduce the risk of stock-outs.
Incorrect. This question has nothing to do with prospect theory. Tversky
and Kahneman's prospect theory argues that decision makers weight
losses more heavily than they do gains. Prospect theory has nothing to
do with the manufacturing firm's decision to relocate its production
facilities.
Incorrect. A risk-sharing approach would be, perhaps, to share the risk of
stock-outs with a supplier. In order for this to be a risk-sharing approach,
another firm or company would need to be involved in sharing the risks
related to the sourcing of raw materials.
Incorrect. The company has not decided to accept the risk of the
unavailability of supplied materials. Instead, it has taken action to mitigate
or reduce the risk. Hence this is not a correct answer to this question.

Module 40 Q4
4. According to the Institute of Internal Auditors
Standards, the internal audit function should have
all of the following competencies except:
A.Knowledge of key information technology risks.
B.Knowledge to evaluate fraud risk.
C.Knowledge of information technology audit
techniques.
D.Knowledge of financial reporting.

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Module 40 Q4 answer
D. Correct. This knowledge is not required.
Internal auditors deal with operations, risk
management, and internal control.

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Module 40 Q5
5. If internal control is properly designed, the
same employee should not be permitted to
A.Sign checks and cancel supporting documents.
B.Receive merchandise and prepare a receiving
report.
C.Prepare disbursement vouchers and sign
checks.
D.Initiate a request to order merchandise and
approve merchandise received.

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Module 40 Q5 answer
A. Incorrect. The person signing the checks should cancel
supporting documents to avoid duplicate payment.
B. Incorrect. The individual receiving the merchandise should
prepare a receiving report so as to establish control over
the goods.
C. Correct. The preparation of disbursement vouchers and
signing of checks places an individual in a position in which
s/he can both prepare erroneous vouchers and then pay
them. Proper internal controls should prevent
misappropriation of funds.
D. Incorrect. The person requesting the merchandise will be
able to determine whether the appropriate merchandise has
been received and should, therefore, approve its receipt.

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Module 41

Module 41 Q1
1. What is the computer process called when data
processing is performed concurrently with a
particular activity and the results are available
soon enough to influence the particular course
of action being taken or the decision being
made?
A. Batch processing.
B. Real-time processing.
C. Integrated data processing.
D. Random access processing.

Module 41 Q1 answer
A.
B.
C.
D.

Incorrect. Integrated batch processing systems collect data into

groups (batches) prior to processing. Then, the entire group of
records is processed at regular intervals.
Correct. This answer is correct because online real-time systems
are those for which processing is performed as data are input and
the results are available immediately.
Incorrect. Integrated data processing refers to a system (batch or
real-time) for which duplicate records and duplicate operations
are minimized.
Incorrect. This answer is incorrect because random access
processing is a method of data access (random versus
sequential access), not a method of data processing.

Module 41 Q2
2. When considering disaster recovery, what type
of backup facility involves an agreement
between two organizations to aid each other in
the event of disaster?
A. Cold site.
B. Hot site.
C. Reciprocal agreement.
D. Rollback.

Module 41 Q2 answer
A. Incorrect. cold site ordinarily involves processing at
another site.
B. Incorrect. hot site ordinarily relies upon a commercial
disaster recovery service that allows a business to
continue in the event of computer disaster.
C. Correct. a reciprocal agreement involves agreement
between two or more organizations to help each other
in the event of disaster to ones processing.
D. Incorrect. a checkpoint system is more directly related
to copying the database at certain points for backup
support.

Module 41 Q3
3. SQL is most directly related to
A. String question language processing.
B. The "grandfather, father, son" method of
record retention.
C. Electronic commerce.
D. Relational databases.
Structured Query Language

Module 41 Q3 answer
A. Incorrect. the term string question language
processing is not used in information technology.
B. Incorrect. SQL is not directly related to record retention
using the grandfather, father, son approach
C. Incorrect. while electronic commerce may use SQL,
the most direct tie is to relational databases.
D. Correct. virtually all relational databases use the SQL
computer language. SQL-Structured Query Language.

Module 41 Q4
4. The Internet is made up of a series of networks
which include
A. Gateways to allow mainframe computers to
connect to personal computers.
B. Bridges to direct messages through the
optimum data path.
C. Repeaters to physically connect separate local
area networks (LANs).
D. Routers to strengthen data signals between
distant computers.

Module 41 Q4 answer
A. Correct. Gateways connect Internet computers
of dissimilar networks.
B. Incorrect. Routers determine the best path for
data.
C. Incorrect. Bridges connect physically separate
LANs.
D. Incorrect. Repeaters strengthen signal
strength.

Module 41 Q5
5. Companies now can use electronic transfers to conduct
regular business transactions. Which of the following
terms best describes a system where an agreement is
made between two or more parties to electronically
transfer purchase orders, sales orders, invoices,
and/or other financial documents?
A. Electronic mail (e-mail).
B. Electronic funds transfer (EFT).
C. Electronic data interchange (EDI).
D. Electronic data processing (EDP).

Module 41 Q5 answer
A. Incorrect. E-mail can send text or document files, but
the term encompasses a wide range of transfers.
Electronic data interchange specifically applies to the
system described in the question.
B. Incorrect. (EFT) refers to the transfer of money.
C. Correct. Electronic data interchange refers to the
electronic transfer of documents between businesses.
D. Incorrect. (EDP) is a generic term which refers to
computerized processing of transaction data within
organizations.

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Module 44

Module 44 Q1
1. The cash conversion is accurately illustrated by which of
the following expressions?
A. Inventory conversion period+ Receivables conversion
period Payables deferral period
B. Inventory conversion period Receivables conversion
period Payables deferral period
C. Inventory conversion period+ Receivables conversion
period+ Payables deferral period
D. Inventory conversion period Receivables conversion
period Payables deferral period+ Long-term financing
period

Module 44 Q1 answer
A. This answer is correct. The cash conversion
cycle measures the time period from the time
the firm pays for its materials and labor to the
time it collects its cash from sales.

Module 44 Q2
2. A company sells 10,000 skateboards a year at $66 each. All sales
are on credit, with terms of 3/10, net 30, which means 3% discount
if payment is made within 10 days; otherwise full payment is due at
the end of 30 days. One half of the customers are expected to
take advantage of the discount and pay on day 10. The other half
are expected to pay on day 30. Sales are expected to be uniform
throughout the year for both types of customers.
What is the expected average collection period for the company?
A. 10 days.
B. 15 days.
C. 20 days.
D. 30 days.

Module 44 Q2 answer
C. This answer is correct. The average collection period is calculated
as: 0.5(10 days) + 0.5(30 days) = 5 + 15 = 20 days.
Not covered but should be pretty straightforward
Related and not covered
Receivables collection period (days sales outstanding)The
average time required to collect accounts receivable.
As an example, assume that the average receivables balance is
$3,000,000 and credit sales are $40,000,000; the receivables
collection period is equal to 27 days as calculated below.
Receivables collection period=$3,000,000
$40,000,000/365days = 27days

Module 44 Q3
3. A company has $1,500,000 of outstanding debt and
$1,000,000 of outstanding common equity.
Management plans to maintain the same proportions of
financing from each source if additional projects are
undertaken. If the company expects to have $60,000 of
retained earnings available for reinvestment in new
projects in the coming year, what dollar amount of new
investments can be undertaken without issuing new
equity?
A. $0
B. $ 24,000
C. $ 90,000
D. $150,000

Module 44 Q3 answer
D. Is correct.
Not covered. From
The proportion of equity in the financial structure of the firm is the value of
outstanding equity divided by the total value of all financing sources.
Value of equity = 1,000,000
Value of debt + Value of equity

=0.40
1,000,000 + 1,500,000

Since the question states that the firm will maintain the same weight of each
financing source, each dollar invested is composed of 40 cents of equity and
60 cents of debt. The first $60,000 of equity used in financing new projects is
sourced from retained earnings. This source of equity is exhausted when the
firm reaches an investment level of
$60,000 / 0.4 = $150,000.
When the level of investment exceeds this amount, equity financing must be
raised externally.

Module 44 Q4
4. Kemple is a newly established janitorial firm, and the owner is
deciding what type of checking account to open. Kemple is
planning to keep a $500 minimum balance in the account for
emergencies and plans to write roughly 80 checks per month. The
bank charges $10 per month plus a $0.10 per check charge for a
standard business checking account with no minimum balance.
Kemple also has the option of a premium business checking
account that requires a $2,500 minimum balance but has no
monthly fees or per check charges. If Kemples cost of funds is
10%, which account should Kemple choose?
A. Standard account, because the savings is $34 per year.
B. Premium account, because the savings is $34 per year.
C. Standard account, because the savings is $16 per year.
D. Premium account, because the savings is $16 per year.

Module 44 Q4 answer
D. This answer is correct. The standard account will cost
$10 per month plus $8 in check charges (80 $0.10) =
$18, or $216 per year. The premium account will have
no fee but will require an additional $2,000 ($2,500
500) of funds on deposit. The interest cost on $2,000 for
the year is $200 ($2,000 10%). Therefore, the cost of
the premium checking is less by $16.
Standard econ type question. Look at both options,
calculate the costs, then take the difference.

Module 44 Q5
5. A company sells 10,000 skateboards a year at $66 each. All sales
are on credit, with terms of 3/10, net 30, which means 3% discount
if payment is made within 10 days; otherwise full payment is due at
the end of 30 days. One half of the customers are expected to take
advantage of the discount and pay on day 10. The other half are
expected to pay on day 30. Sales are expected to be uniform
throughout the year for both types of customers. Assume that the
average collection period is 25 days. After the credit policy is well
established, what is the expected average accounts receivable
balance for the company at any point in time, assuming a 365-day
year?
A. $684.93
B. $1,808.22
C. $27,123.30
D. 45,205.48

Module 44 Q5 answer
D. This answer is correct.
The average accounts receivable balance is
calculated as:
Credit sales per day x Average collection period =
(10,000 units x $66 unit price) / 365 x 25 days =
$45,205.48.

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Module 45

Module 45 Q1
1. Yonder Motors sells 20,000 automobiles per year on
credit for $25,000 each. The firms average receivables
are $30,000,000 and average inventory is
$40,000,000. Yonders average collection period is
closest to which one of the following? Assume a 365day year.
A. 17 days.
B. 22 days.
C. 29 days.
D. 61 days.

Module 45 Q1 answer
Correct Answer: B.
The average collection period, also called the days sales
outstanding in receivables, is calculated as the number of days in
the year over the receivables turnover ratio. Yonders can thus be
calculated as follows:
Average collection period =
Average accounts receivables average sales per day =
$30,000,000 [(20,000 $25,000) 365] =
$30,000,000 ($500,000,000 365) =
365 * $30,000,000 500,000,000 =
21.9 days

Module 45 Q1 alternative answer

Correct Answer: B. formula is presented in a slightly different fashion
than the book but both give the same answer.
The average collection period, also called the days sales outstanding in
receivables, is calculated as the number of days in the year over the
receivables turnover ratio. Yonders can thus be calculated as follows:
Average collection period =
Days in year Accounts receivable turnover =
365 (Net credit sales Average net receivables) =
365 [(20,000 $25,000) $30,000,000] =
365 ($500,000,000 $30,000,000) =
365 16.667 =
21.9 days

Module 45 Q2
2. The DePaul Corporation had a net income of
$50,000. What is the amount of the investment
if the return on investment is 20%?
A. $100,000
B. $200,000
C. $250,000
D. $500,000

Module 45 Q2 answer
C. This answer is correct. One way of calculating
ROI is net income divided by invested capital
(equity). This answer is correct because the
amount of investment would be computed as
follows: If ROI = 20% and net income = $50,000,
then dividing $50,000 by 20% = $250,000.

Module 45 Q3
3. Super Sets, Inc. manufactures and sells television sets.
All sales are finalized on credit with terms of 2/10,
n/30. Seventy percent of Super Set customers take
discounts and pay on day 10, while the remaining 30%
pay on day 30. What is the average collection period in
days?
A. 10
B. 16
C. 24
D. 40

Module 45 Q3 answer
B. This answer is correct because the average
collection period is calculated to be 16 (70% x
10 days + 30% x 30 days).
Not covered. Given now.

Module 45 Q4
4. The following is available for Cara Corp. for 2012:
Sales
$2,000,000
Average invested capital 500,000
Net operating income
300,000
Imputed interest rate
18%
What is the return on investment at Cara Corp.?
A. 60%
B. 33%
C. 18%
D. 15%

Module 45 Q4 answer
A. This answer is correct. The return on
investment would be computed by dividing net
operating income by average invested capital
(300,000 / 500,000 = 60%).

Module 45 Q5
5. What is the primary disadvantage of using return on
investment (ROI) rather than residual income (RI) to
evaluate the performance of investment center
managers?
A. ROI is a percentage, while RI is a dollar amount.
B. ROI may lead to rejecting projects that yield positive
cash flows.
C. ROI does not necessarily reflect the companys cost of
capital.
D. ROI does not reflect all economic gains.

Module 45 Q5 answer
B. This answer is correct. The requirement is to
identify the primary disadvantage of using ROI
rather than the RI as an evaluation technique.
This answer is correct because if a unit is being
evaluated based on ROI, it may not want to
undertake a project with a lower ROI than its
current average even though the project has
positive RI.