1- In class, we discussed the car dealership case of Tranum v. Broadway. What event occurred that finally caused the car dealership's accounting issues and internal controls to be at the center of litigation?
a) The bookkeeper acted as the whistleblower and reported the accounting improprieties to the owner.
b) The owner of the car dealership retained a CPA to audit the financial statements of the car dealership as required by Ford Motor Co.
c) None of the other choices are correct.
d) The manager of the car dealership hired a CPA to audit the financial statements of the car dealership as required by Ford Motor Co.
e) The check written to Ford Motor Company was returned NSF (Not Sufficient Funds).
2- On January 15, 2017, the appropriate employee in the accounting department of X Company is doing a bank reconciliation for the bank statement for the month ended December 31, 2016. The employee sees that the bank collected $500 for X Company on a note receivable that X Company had from one of the customers that X Company had extended credit to. Also, the bank statement shows that the bank charged $50 for bank service charges. What journal entry, if any, should the employee journalize as a result of completing the bank reconciliation?
a) No employee makes a journal entry based on a bank reconciliation.
b) The journal entry is dated December 31, 2016: debit cash $450, debit bank charges expense $50, credit notes receivable $500.
c) The journal entry is dated December 31, 2016: credit cash $500, debit bank charges expense $50, debit notes receivable $450.
d) The journal entry is dated January 31, 2017: debit cash $450, debit bank charges expense $50, credit notes receivable $500.
e) The journal entry is dated January 15, 2017: debit cash $450, debit bank charges expense $50, credit notes receivable $500.
3- In class, in connection with involvement of more than one CPA firm where the audit of consolidated financial statements involves more than one firm, we identified 5 ways that corporations combine operations. Which of the following is not one of the 5 ways that corporations combine operations?
a) Statutory merger by acquisition of assets
b) Statutory merger by acquisition of stock
c) Variable interest entities
d) None of the other choices are correct
e) Pooling of interests
4- You are auditing a mining company that does business in the United States and in a foreign country. In the course of auditing expenses, you find evidence of a transaction in which a foreign official was paid to expedite the authorization of an employee's commercial driver's license in that country. The employee obtained this license sooner as a result of the payment. Under the Foreign Corrupt Practices Act, which of the following choices best describes the consequence of this transaction?
a) None of the other choices are correct.
b) If the foreign official has the discretion and judgment to decide whether the issuance of the commercial driver's license is proper, and provided the audited company has the internal controls to identify this transaction as a smoothing payment, then this is not a violation of the Foreign Corrupt Practices Act.
c) If the foreign official has the ministerial duty to issue the commercial driver's license without exercising discretion, regardless of the audited company having the internal controls to identify this transaction as a smoothing payment, then this is not a violation of the Foreign Corrupt Practices Act.
d) If the foreign official has the ministerial duty to issue the commercial driver's license without exercising discretion, and provided the audited company has the internal controls to identify this transaction as a smoothing payment, then this is not a violation of the Foreign Corrupt Practices Act.
e) This is a violation of the Foreign Corrupt Practices Act.
5- You are a CPA and you are considering doing an audit for a new client. Which of the following choices would definitely cause you to not accept a new audit engagement?
a) The new client reluctantly authorizes its predecessor auditors to discuss previous years' audits with you. The new client also reluctantly authorizes its corporate attorneys to discuss the new client's legal circumstances with you. You discover that the new client underwent an antitrust audit which revealed evidence of horizontal price fixing which occurred last year. No case has been filed, nor does corporate counsel expect a case to be filed. The practice has been stopped. The new client is not publicly traded.
b) None of the other choices are correct.
c) The new client reluctantly authorizes its predecessor auditors to discuss previous years' audits with you. The new client also reluctantly authorizes its corporate attorneys to discuss the new client's legal circumstances with you. You discover that the new client paid a civil settlement before the filing of a civil case for alleged antitrust violations associated with vertical price fixing which occurred last year. The amount of settlement was not material to the financial statements taken as a whole, and the settlement cost was properly recognized in the financial statements. The practice has been stopped. The new client is not publicly traded.
d) The new client has fired its prior auditor for last year's audit. The new client is publicly traded.
e) The new client will make financial records for last year available to you only if you accept the audit engagement. The client is publicly traded.
6- In considering who should conduct an antitrust audit:
a) None of the other choices are correct.
b) An independent accounting firm who has had no previous relationship with the corporation which enhances the objectivity in appearance
c) The controller would be a good choice because of the overall understanding of the accounting system and communications with the external auditors of the financial statements
d) The internal auditor would be a good choice because of the familiarity with the internal controls behind the business practices and accounting practices
7- The company's balance sheet date is December 31. The company's financial statements are audited in accordance with standards of the PCAOB for conformity with accounting principles generally accepted in the United States of America. The transactions described are all done with management's knowledge, are not the result of honest error, and the amount of revenue is material to the revenue account and to the financial statements taken as a whole. Which of the following is not an example of fraudulent financial reporting?
a) The audit reveals that the company received $1 million dollars on December 31 of Year 1 in payment of merchandise that was shipped the very next day on January 1 of Year 2. On December 31 of Year 1, the company debited cash and credited Revenues for this amount. On January 1 of Year 2, the company debited Deferred Revenue and credited Revenue for this amount.
b) The audit reveals that the company received $1 million dollars on December 31 of Year 1 in payment of merchandise that was shipped the very next day on January 1 of Year 2. On December 31 of Year 1, the company debited Cash and credited Revenues for this amount. On January 1 of Year 2, the company made no journal entry.
c) None of the other choices are correct.
d) The audit reveals that the company received $1 million dollars on December 31 of Year 1 in payment of merchandise that was shipped the very next day on January 1 of Year 2. On December 31 of Year 1, the company debited cash and credited Deferred Revenues for this amount. On January 1 of Year 2, the company debited Deferred Revenue and credited Revenue for this amount.
e) The audit reveals that the company received $1 million dollars on December 31 of Year 1 in payment of merchandise that was shipped the very next day on January 1 of Year 2. On December 31 of Year 1, the company debited Accounts Receivable and credited Deferred Revenues for this amount. On January 1 of Year 2, the company debited Cash and credited Prior Period Adjustment, Beginning Balance of Retained Earnings January 1, Year 2 for this amount.
8- On January 15, 2017, the appropriate employee in the accounting department of X Company is doing a bank reconciliation for the bank statement for the month ended December 31, 2016. The employee sees that the bank collected $500 for X Company on a note receivable that X Company had from one of the customers that X Company had extended credit to. Also, the bank statement shows that the bank charged $50 for bank service charges. What should the employee do, if anything, with these transactions with regard to completion of the bank reconciliation?
a) The employee should do nothing since this activity is already in the bank account as evidenced by the bank statement.
b) Add the $500 to the cash balance in the bank statement, and subtract the $50 from the general ledger account.
c) Add the $500 to the cash balance in the general ledger account, and subtract the $50 from the cash balance in the bank statement.
d) Subtract the $500 from the cash balance in the bank statement, and subtract the $50 from the general ledger account.
e) Add the $500 to the cash balance in the general ledger account, and subtract the $50 from the general ledger account.
9- An antitrust audit should be conducted by:
a) an attorney who is intimately familiar with the company
b) an attorney who recognizes the legal and accounting issues
c) the accounting firm that conducts the audit of the financial statements
d) None of the other choices are correct.
e) the internal auditor (who normally reports directly to the board of directors anyway)
10- Which of the following constitute a per se criminal antitrust violation:
A) vertical price fixing
B) None of the other choices are correct.
C) bid submission
D) market participation
E) bid rigging