ninja notes Flashcards

Question 1

Q

What is the primary duty of an auditor?

Answer

A

To provide users of financial information with REASONABLE ASSURANCE that the financial statements are not materially misstated.

Question 2

Q

How does a price increase affect supply?

Answer

A

When the prices of an item increases supply increases- because more sellers are willing to sell.

Question 3

Q

What is the primary objective of accounting?

Answer

A

To measure income

Question 4

Q

Under what accounting basis are individual tax returns prepared?

Answer

A

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.

Question 5

Q

What is the auditor’s responsibility for detecting theft or fraud?

Answer

A

Auditors are not responsible for detecting theft or fraud.

Instead- they are responsible for providing REASONABLE ASSURANCE that the financial statements are not materially misstated.

Question 6

Q

What is a supply curve shift?

Answer

A

When supply changes due to something other than price.

Question 7

Q

What is the most authoritative set of accounting pronouncements?

Answer

A

The FASB Codification

All pronouncements fall under the Codification umbrella

Question 8

Q

What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

Answer

A

*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can’t be another taxpayer’s dependent)
*Moving expenses
*Alimony
*Tuition - can’t take AOC/Lifetime Learning Credit for same expense
*Teacher expenses
*Attorney fees in discrimination lawsuit

Question 9

Q

When should an auditor be hired in relation to the balance sheet date for optimum audit planning and efficiency?

Answer

A

The earlier the auditor is hired- the better for audit planning and efficiency.

Question 10

Q

What are the characteristics of a positive supply curve shift (shift right)?

Answer

A

Supply increases at each price point

Higher Equilibrium GDP

Number of sellers increases - market can get flooded

Examples: Government subsidies or technology improvements that decrease costs for suppliers

Question 11

Q

What are the 2 Levels of Authority within the FASB codification?

Answer

A

Authoritative and Non-Authoritative

Question 12

Q

Which items can be carried over to future years on an individual tax return?

Answer

A

Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses

Question 13

Q

When can audit procedures be performed at interim dates?

Answer

A

If Control Risk for the accounts and/or transactions is low- audit procedures can be performed at interim dates.

The auditor then reviews changes in the balances at year-end.

Question 14

Q

What are the characteristics of a negative supply curve shift (shift left)?

Answer

A

Supply decreases at each price point

Lower Equilibrium GDP

Cost of producing item increases

Examples: Shortage of gold- so less gold watches are made; wars or crises in rice-producing countries means there is less rice on the market

Question 15

Q

How does managerial accounting differ from financial accounting?

Answer

A

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

Question 16

Q

Characterize the following carryover: Passive Activity Loss

Answer

A

No carryback

Can carry forward indefinitely

Question 17

Q

When can an auditor accept an engagement offered after the year is already closed?

Answer

A

The auditor can take the engagement if they are able to overcome the limitations of the engagement.

Question 18

Q

How does price affect the demand for an item?

Answer

A

When the prices of an item increases- demand for it decreases.

Question 19

Q

Which financial reports are required to be filed with the SEC?

Answer

A

Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed

Question 20

Q

How is excess 179 expense carried forward?

Answer

A

Carry forward to next year.

Use in any year is limited to taxable income.

Question 21

Q

For what does an auditor use professional skepticism?

Answer

A

To plan the scope of the audit

To plan the objectives of the audit

Question 22

Q

What is a Demand Curve Shift?

Answer

A

When demand changes due to something other than price.

Question 23

Q

What is the focus of financial reports for individual companies?

Answer

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

Question 24

Q

How long can investment interest expense in excess of investment income be carried forward?

Answer

A

Indefinitely.

Question 25

Q

How can analytical procedures be performed in audit planning?

Answer

A

The auditor can compare actual versus forecasted numbers.

Question 26

Q

What is a Positive Demand Curve Shift (Shift Right)?

Answer

A

When demand increases at each price point

Price of substitutes go up - price of beef rises- so people buy more chicken

Future price increase is expected - War in Middle East- people go out and buy gas

Market expands - i.e. people get new free health care plan- demand at clinic rises

Expansion - more spending increases equilibrium GDP

Question 27

Q

What are the Primary Constraints of Financial Reporting?

Answer

A

Cost vs. Benefit

Materiality

Question 28

Q

How long is the carry forward for charitable contributions?

Answer

A

Can be carried forward 5 years.

Question 29

Q

What must an auditor have in order to discuss issues relating to a predecessor auditor’s work?

Answer

A

If issues relating to predecessor auditor’s work on previous Financial Statements come up during the current audit- Auditor must have client’s permission to discuss the issue.

Question 30

Q

What is a Negative Demand Curve Shift (Shift Left)?

Answer

A

Demand decreases at each price point.

Price of complement goes up - price of beef goes up- less demand for ketchup

Boycott - Company commits social blunder- consumers boycott

Consumer income rises - Demand for inferior goods drops as people have more money to spend

Consumer tastes change

Contraction - less spending decreases equilibrium GDP

Question 31

Q

What are the Secondary Constraints of Financial Reporting?

Answer

A

Consistency - Year vs. Year

Comparability - Company vs. Company

Question 32

Q

How long is AMT paid carried forward, and how is it applied?

Answer

A

It can be carried forward indefinitely.

It may be applied against future regular income tax, but not against future AMT tax liability.

Question 33

Q

What questions must an auditor ask with respect to procedures carried out by assistants?

Answer

A

Were they adequately performed? (Review the working papers)

Are the results consistent with the audit report?

Question 34

Q

What is the Marginal Propensity to Consume?

Answer

A

How much you spend when your income increases

Calculate: Change in Spending / Change in Income

Question 35

Q

What are the Qualitative Characteristics of Financial Reporting?

Answer

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

Question 36

Q

How are capital losses applied in individual taxes?

Answer

A

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.

The loss retains its character (STCL or LTCL).

Question 37

Q

How is audit strategy mapped out?

Answer

A

Auditor determines what the reporting objectives are.

Auditor determines the scope of the audit.

Question 38

Q

What is the Marginal Propensity to Save?

Answer

A

How much you save when income increases

Calculate: Change in Savings / Change in Income

Also equals 1 - Marginal Propensity to Consume

Question 39

Q

What are the Enhancing Qualitative Characteristics of Financial Reporting?

Answer

A

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

Question 40

Q

How does an individual capital loss carryover differ from a corporate capital loss carryover?

Answer

A

Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.

Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.

Question 41

Q

What are the foundations of Generally Accepted Audit Standards (GAAS)?

Answer

A

Materiality and Audit Risk

Question 42

Q

How is the multiplier effect calculated?

Answer

A

(1 / 1-MPC) x Change in Spending

Question 43

Q

How does Conservatism affect the recording of accounting transactions?

Answer

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

Question 44

Q

What ratio is applied to principle payments in an installment sale to determine the gain in a given year?

Answer

A

Gross Profit / Contract Price

Question 45

Q

What are the General Standards for auditing?

Answer

A

Training and Proficiency (Education and Audit Experience)

Independence

Due Professional Care

(TIP)

Question 46

Q

How does increased spending by consumers and the government affect the demand curve?

Answer

A

As spending by consumers or the government increases- the demand curve increases (shifts right).

Question 47

Q

What is an accrual?

Answer

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

Question 48

Q

What is the contract price in an installment sale for income tax purposes?

Answer

A

Contract Price = Sales Price - Liability assumed by buyer

Question 49

Q

Describe the key components of maintaining auditor independence.

Answer

A

Auditor must be independent in fact and appearance

Honesty

No direct financial interest

No indirect material financial interest

Question 50

Q

How does spending change due to the multiplier effect?

Answer

A

The increase in demand ends up being larger than the amount of additional income spent in the economy due to the multiplier effect.

One consumer spends money- which:
*Increases the income of a business
*Increases the income of a vendor
*Increases income of employees
*Increases tax revenue

Question 51

Q

What is a deferral?

Answer

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

Question 52

Q

On an individual return, regular mortgage interest on what loan amount is deductible?

Answer

A

$1,000,000

Question 53

Q

Describe Due Professional Care

Answer

A

<p class="large" style="text-align:center";>Technical abilities mirror those held by peers in the profession
Follow GAAS Standards
Obtain a Reasonable Level of Assurance
Maintain Reasonable Level of Skepticism
Supervise Audit Staff
Review judgment at every level</p>

Question 54

Q

How is Price Elasticity of Demand calculated?

Answer

A

% Change in Quantity Demand / % Change in Price

Question 55

Q

What is recognition in accounting?

Answer

A

When an item is recorded and included in the financial statements

Question 56

Q

Interest on home equity loans up to what amount are deductible on an individual tax return?

Answer

A

$100,000

Question 57

Q

List the Standards of Field Work

Answer

A

Planning and Supervision
Internal Control
Evidence

(PIE)

Question 58

Q

Under elastic demand- how does price affect revenues?

Answer

A

Price increases- Revenue decreases

Price decreases- Revenue increases

Question 59

Q

Describe fair value with respect to an asset

Answer

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

Question 60

Q

What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

Answer

A

$25 per person for gifts

Service awards up to $400

Question 61

Q

List the Standards of Reporting

Answer

A

Consistency
Disclosures
Opinion
GAAP

(CDOG)

Question 62

Q

What conditions would indicate Elastic Demand?

Answer

A

Many substitutes (luxury items)
Considered elastic if elasticity is greater than 1
10% drop in demand / 8% increase in price : 1.25 (Elastic)

Price increases- Revenue decreases
Price decreases- Revenue increases

Question 63

Q

What market assumptions are made in a fair value assessment?

Answer

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

Question 64

Q

What income can business losses offset on a 1040?

Answer

A

They may only offset active business income.

Note: W2 wages are considered active business income.

Answer 65

A

Review the previous financial statements

Speak to third parties

Contact predecessor auditor to evaluate whether engagement should be accepted (must have client permission)

Answer 66

A

Price increases- Revenue increases

Price decreases- Revenue decreases

Answer 67

A

Price quotes or market prices

For example NYSE or NASDAQ

Answer 68

A

Only passive income such as rental income or limited partnership income.

Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)

Answer 69

A

Note: must have permission of client to contact predecessor auditor (no permission = no engagement)

Why the Auditor Change?
Any Serious Discussions with Audit Committee?
How is Management Integrity? Disagreements?
How was Internal Control?
Understand Industry or Be Willing to Learn
Consider Scope Limitation - Limited evidence available = no engagement

Answer 70

A

Few substitutes (groceries- gasoline)
Considered inelastic if coefficient of elasticity is less than 1
5% drop in demand / 10% increase in price : .5 (inelastic)

Price increases- Revenue increases
Price decreases- Revenue decreases

Answer 71

A

Interest rates

Prime rate

Answer 72

A

Neither. They are portfolio income.

Answer 73

A

Note: must be written

Objectives of Engagement
Limitations of Engagement
Responsibilities of Management - Provide written assertions
Responsibilities of Auditor - Limited error/fraud responsibility
Expectations of Access to Records
Financial Statements (and Disclosures) are Management’s Responsibility
Compliance with Laws
Internal Control

Answer 74

A

Total revenue will remain the same if price is increased

Considered unitary if coefficient of elasticity : 1

Answer 75

A

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

Answer 76

A

Mid-year/Mid-quarter

Answer 77

A

Management is responsible for financial statements and adequacy of disclosures.

Presentation & Disclosure
Existence (Tests Overstatements)
Rights & Obligations
Completeness (Tests Understatements)
Valuation & Allocation</p>

Answer 78

A

% Change Quantity Demanded / % Change in Income

Normal goods greater than 1 (demand increases more than income)

Inferior goods less than 1 (demand increases less than income)

Answer 79

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

Answer 80

A

For depreciation when 40% or more of all purchases occur in 4th quarter.

Answer 81

A

Responsible for Hiring Auditor

Oversees Internal Control

Must Agree with Auditor on: Responsibility of the Parties- Audit Fee- Timing of the Audit- Audit Plan

Acts as Liaison Between Auditor and the Board

Auditor Communicates Concerns about: Internal Control Deficiencies- Errors- Fraud- Illegal Activities

Answer 82

A

Interest rates increase
Reduced demand for loans
Reduced demand for houses- autos- etc.
Value of bonds and fixed income securities decrease
Inferior good demand to increase
Foreign goods more affordable than domestic
Demand for domestic goods decrease

Answer 83

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

Answer 84

A

Mid-month

Answer 85

A

Inherent Risk x Control Risk x Detection Risk

Risk that material mistakes- errors- omissions- or fraud will result in an inaccurate audit report

Based on Auditor Judgment

Measured in both Qualitative and Quantitative

Answer 86

A

Overall spending increases

Demand increases (shifts right)

Market equilibrium price increases

Answer 87

A

Liabilities that will use current assets during the present operating cycle

Answer 88

A

15 year straight line (S/L)

Answer 89

A

Risk that internal control will not detect error or fraud

Auditor cannot control this.

Answer 90

A

Overall production costs increase
Supply decreases (shifts left)
Market equilibrium price increases

Note: Demand-Pull and Cost-Push Inflation BOTH result in market equilibrium price to increase

Answer 91

A

Expense that has been incurred but not paid

Example: rents payable

Answer 92

A

Up to $5,000

Amortized over 180 months

Reduced dollar-for-dollar by amount over $50,000

Answer 93

A

Which transactions have a higher level of risk?

Auditor cannot control

Answer 94

A

The price where Quantity Supplied : Quantity Demanded

Answer 95

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

Answer 96

A

On Schedule A:

Amounts in excess of 10% of AGI may be deducted

Answer 97

A

Will the auditor fail to detect a material misstatement?

Auditor CAN control

Do testing at year-end
Increase substantive testing
Run more effective tests

Answer 98

A

When Marginal Revenue : Marginal Cost

Answer 99

A

When they have been earned; i.e. company has performed

Answer 100

A

Accident or disability insurance premiums are not deductible.

Answer 101

A

Less Acceptable DR = Run More Substantive Tests

More Acceptable DR = Run Less Substantive Tests

More Substantive Tests (DR down) = Less Audit Risk; (AR = IR x CR x DR)

Less Substantive Tests (DR up) = More Audit Risk; (AR = IR x CR x DR)

Answer 102

A

Causes a surplus if above equilibrium price.

Answer 103

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

Answer 104

A

Must be a citizen of North America

Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.

Benefactor must provide more than 50% support to the beneficiary.

Answer 105

A

Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of percentages

Non-Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of acceptable ranges

Answer 106

A

The annual value of all goods and services produced domestically at current prices by consumers- businesses- the government- and foreign companies with domestic interests

Included: Foreign company has US Factory

Not included: US company has foreign factory

Answer 107

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

Answer 108

A

Foreign INCOME and REAL ESTATE taxes are deductible.

Foreign personal property taxes are NOT deductible.

Foreign tax assessments are not deductible- they are added to the basis.

Answer 109

A

It is Management’s responsibility.

Answer 110

A

Sole Proprietor and Corp Income
Passive Income
Taxes
Employee Salaries
Foreign Income Adjustments
Depreciation

Answer 111

A

Average time it takes to turn materials or services into Cash

Answer 112

A

Gross investment income - investment expense in excess of 2% of AGI = net investment income

Investment interest expense in excess of net investment income is deductible.

Answer 113

A

Assess the RISK that such things will lead to material misstatements

Design the audit to provide reasonable assurance against fraud- illegal acts that directly and materially affect the financial statements

Report ALL management fraud to the audit committee (minor fraud by low-level employees not reported to committee)

Perform required inquiries and procedures (management inquiries- analytical procedures- discussions with audit personnel about fraud)

Answer 114

A

Individual Consumption

Private Investment

Government Purchases

Net Exports

Answer 115

A

Valuation method - the current value of a future amount of money using a specific interest rate

Answer 116

A

Investment interest expense on tax-free securities is not deductible.

Answer 117

A

Fraud is born out of:

Rationalization
Incentive
Opportunity

(RIO)

Answer 118

A

Measures goods/services in current prices.

Answer 119

A

How much an asset cost - (net of depreciation and amortization)

Answer 120

A

They are deductible if they represent prepaid interest on purchase of a new home or improving a home.

Refinance points are amortized over the life of the mortgage.

Answer 121

A

Errors are unintentional- fraud is intentional.

Answer 122

A

Used to convert GDP to Real GDP

Answer 123

A

How much it would cost to reacquire an asset today (Entrance Cost)

Answer 124

A

Deducted at fair market value (FMV), up to 30% of AGI

Answer 125

A

Management compensation tied to stock
Aggressive financial forecasting
Former auditor disagreed with Management
Records not available for audit

Current audit procedures may need to be reconsidered if red flags exist.

Answer 126

A

Nominal GDP / GDP Deflator x 100

Answer 127

A

The sale price of an asset (Exit Cost)

Answer 128

A

Deduction is taken for adjusted basis in the property, up to 50% of AGI.

Answer 129

A

Has been observed in similar situations

Does NOT necessarily mean that there is a material weakness in internal control

Leads to an auditor taking action

Answer 130

A

Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included

Answer 131

A

Sale Price of an Asset - Selling/Disposal Fee

Answer 132

A

No. It decreases the fair market value (FMV) of the property.

Answer 133

A

Internal control analysis can result in the conclusion that IC is weak- but probably won’t identify illegal acts

Answer 134

A

Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0

((CPI Current - CPI Last) / CPI Last) * 100

Answer 135

A

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

Answer 136

A

Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)

GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss

Answer 137

A

Strives to make audit engagement procedures less patterned and predictable

Re-evaluates management’s application of accounting procedures

Finds and assigns audit personnel with relevant skills in this area

Answer 138

A

Personal Income - Personal Taxes

Answer 139

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

Answer 140

A

Deductible in excess of 2% of AGI

Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions

Answer 141

A

Any fraud risks identified that could lead to material misstatement

Audit procedures performed to assess risks

Nature of communication made to audit committee and company management

Disclosure to third parties regarding fraud not normally the auditor’s responsibility

Fraud by management should normally be reported to the audit committee- NOT the SEC.

Answer 142

A

% Increase in output / % Increase in input

Greater than 1 : Increasing returns to scale

Less than 1 : Decreasing returns to scale

Answer 143

A

Gross Profit that can’t be recognized until cash is received

D.GP : Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

Answer 144

A

Medical
Casualty
Gambling
Investment Interest Expense

Answer 145

A

Created PCAOB

Designates Officer responsibility for internal control

Must disclose significant internal control weaknesses to auditor and audit committee

Must disclose any level of fraud discovered by employees with internal control responsibilities

Answer 146

A

When GDP growth is negative for two consecutive quarters.

Answer 147

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

Answer 148

A

Must be resident of North America

Under age 19, or under age 24 if a student

Answer 149

A

1. Statements on Auditing Standards (SAS)

Auditing Interpretations- AICPA Guides & SOPs
Industry Articles (no authority)

Answer 150

A

A prolonged- severe recession with high unemployment rates

No requisite period of time for the economy to officially be in a depression

Answer 151

A

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

Answer 152

A

Must be citizen of North America

Must live with you, unless mother/father or relative closer than a cousin

You must provide more than 50% support to the individual

Answer 153

A

Firm Leadership exhibits quality and leads by example and sets the tone for the organization

Firm should Monitor and document that its policies and procedures are being followed

Firm should have Relevant Ethical Requirements

Acceptance and continuance of client engagements should continue to be evaluated for client integrity- auditor competency- and legality

Firm should have competent and ethical personnel

Firm engagements are performed- supervised- and reviewed in accordance with professional standards and regulations.

Answer 154

A

Peak (highest)
Recession (decreasing)
Trough (lowest)
Recover (increasing)
Expansion (higher again)

Answer 155

A

Franchiser - Startup franchise fee revenue deferred until franchisee has completed substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

Answer 156

A

Child’s unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child’s itemized deduction related to unearned income
= Amount taxed at parents’ rate

Answer 157

A

SSARS - Statements on Standards for Accounting and Review Services

These govern reporting for non-public entities only

Answer 158

A

Conditions that occur before a recession or before a recovery

Example: Stock Market or New Housing Starts

Answer 159

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis

Answer 160

A

Yes, if they each own a small business. All non-business income is cash basis.

Answer 161

A

Independence NOT required for Compilations

No Internal Control work allowed

No assurance given

Answer 162

A

Conditions that occur after a recession or after a recovery

Examples: Prime Interest Rates- Unemployment

Answer 163

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid) 
\+Increase in Accounts Payable
-Increase in Inventory
\:COGS on an Accrual Basis
</p>

Answer 164

A

15.3% of net earnings from self-employment

(Note: executor of an estate is NOT self-employment income)

Answer 165

A

Compilations are not an assurance service. No assurance is provided.

Answer 166

A

Conditions that occur during a recession or during a recovery

Example: Manufacturing output

Answer 167

A

Reported Net of Tax after Continuing Operations but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal 
</p>

Answer 168

A

A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer.

Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

Answer 169

A

Reviews provide NEGATIVE assurance.

Answer 170

A

Only people looking for jobs

Answer 171

A

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual or Infrequent Items are reported as part of Continuing Operations

Answer 172

A

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

Answer 173

A

Reviews require independence.

No Internal Control work allowed
Performs analytical procedures
No material indirect financial interest allowed
No immaterial direct financial interest allowed

Answer 174

A

GDP doesn’t grow fast enough to employ all people who are looking for work

Example: People are unemployed in 2010 because there aren’t enough jobs available due to the economy

Answer 175

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

Answer 176

A

The lesser of:

90% of current year’s total tax

100% of prior year’s total tax

110% of prior year’s total tax (if AGI is $150,000 or more)

Answer 177

A

Must have an understanding of the client industry.

Answer 178

A

People are changing jobs or entering the work force. This is a normal aspect of full employment.

Example: A recent college graduate is looking for a job

Answer 179

A

When they are incurred. Accrue if not yet paid.

Answer 180

A

Deductible: Costs incurred to PRESERVE soil/water

Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

Answer 181

A

CPA expresses a conclusion about an assertion - Compliance with laws

NOT considered a Consulting engagement

Independence Required

Answer 182

A

A worker’s job skills do not match those necessary to get a job so they need education or training

Example: A construction worker wants to work in an office- so they quit their job and get computer training

Answer 183

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

Answer 184

A

MACRS 150

Answer 185

A

Independence is not required for consulting services.

Answer 186

A

High Unemployment : Low Inflation (Vice Versa)

Answer 187

A

Immediately.

Answer 188

A

90 days

Answer 189

A

Report is restricted to specified users.

Agreed-upon procedures are implemented.

Answer 190

A

The rate a bank pays to borrow from the Fed.

Answer 191

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

Answer 192

A

10 days

Answer 193

A

The rate a bank charges their best customers on short-term borrowings.

Answer 194

A

One-time costs for opening a new business

Expensed as they are incurred

Answer 195

A

3 years, generally

6 years if 25% or more of gross income was omitted

The clock starts on the LATER of the due date or the filing date of the return.

There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.

Answer 196

A

Inflation-adjusted interest rate

Answer 197

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

Answer 198

A

It is treated as a STCL

Answer 199

A

Rate that uses current prices

Answer 200

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

Answer 201

A

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.

Answer 202

A

Rate for a loan with 100% certainty of payback.

Usually results in a lower rate.

US Treasuries are an example.

Answer 203

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

Answer 204

A

Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.

Answer 205

A

Currency- Coins- and Deposits

Answer 206

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

Answer 207

A

When they are not in return for services rendered,

AND

The money is used only for tuition and books

Note: Scholarships for room and board are includable in income.

Answer 208

A

Highly liquid assets other than currency- coins or deposits

Answer 209

A

Reported in a Single or Combined Income Statement

Answer 210

A

State & municipal bond interest

US EE Savings Bond interest (note: HH bond interest is taxable)

Answer 211

A

Increased spending levels without increased tax revenue.

Lower taxes without decrease in spending

Gamble that the multiplier effect will take over and boost economy

Answer 212

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

Answer 213

A

S-corporation (actually distributions)

Life insurance

Answer 214

A

By buying and selling the government’s securities.

Answer 215

A

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

Answer 216

A

Up to 85%

Answer 217

A

By adjusting the discount rate charged to banks

Answer 218

A

Yes.

Answer 219

A

A tax on imported goods

Answer 220

A

Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)

Any payments for punitive damages ARE taxable.

Answer 221

A

A limit on the number of goods that can be imported

Answer 222

A

No - similar to an award for damage to make a person whole.

Answer 223

A

They are good for domestic producers.

Demand curve shifts right

Fewer substitutes

They can charge higher prices

Answer 224

A

Alimony IS taxable.

Child support and divorce property settlements are NOT taxable.

Answer 225

A

They are bad for foreign producers

Demand curve shifts left

Fewer buyers

They must charge lower prices

Answer 226

A

NO, they are not deductible. However tax benefits are available through the adoption CREDIT.

Answer 227

A

They are good for foreign consumers

Supply curve shifts right

Goods purchased at lower prices in the foreign markets

Answer 228

A

2nd Year: (3rd year - 2nd year - $15,000)

1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture

Total Recapture = 1st Year Recapture + 2nd Year
Recapture

Answer 229

A

They are bad for domestic consumers

Supply curve shifts left

Fewer goods bought due to higher prices

Answer 230

A

Can be carried back 2 years

If any left, can be carried forward 20 years.

Answer 231

A

Explicit (Actual) cost of operating a business

Implicit costs are opportunity costs

Answer 232

A

Traditional IRA = deductible

Roth IRA = not deductible

Answer 233

A

Revenue - Accounting Cost

Answer 234

A

They must be married at the end of the year.

If one spouse dies, they must be married at the end of the year.

Answer 235

A

Explicit + Implicit Cost

Answer 236

A

Must have a dependent child

Must provide more than 50% of the child’s support

Must live with them more than 50% of the year

Answer 237

A

Revenue - Economic Cost

Answer 238

A

Must have a dependent child.

Essentially gets MFJ status for the year of death + 2 tax years

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