Question 1

The account that records expenses, gains and losses is

Options :

A : Personal account

B : Real account

C : Nominal account

D : None of the above

Answer: C

Question 2

Identify the correct statement regarding analytical procedures used in a review conducted at the conclusion of an audit.

Options :

A : The ultimate purpose of analytical procedures used in a review conducted at the conclusion of the audit is to uncover fraud schemes that may have been missed previously during the audit.

B : Typically, a junior member of the engagement team will perform the analytical procedures applied at the conclusion of the audit because less precision is required.

C : If review analytical procedures suggest the presence of misstated account balances, the auditor may have to perform additional substantive tests of details to satisfactorily complete the audit.

D : Analytical procedures used in the review near the conclusion of the audit are not required.

Answer: C

Question 3

Knickerbocker Corp. issued $20 million of long-term debt in the current year. What is a major advantage to Knickerbocker with the debt issuance?

Options :

A : The reduced earnings per share possible through financial leverage.

B : The relatively low after-tax cost due to the interest deduction.

C : The increased financial risk resulting from the use of the debt.

D : The reduction of the shareholders' control over the company.

Answer: B

Question 4

Which TWO of the following errors would cause the total of the debit column and the total of the credit column of a trial balance not to agree? (1) A transposition error was made when entering a sales invoice into the sales day book (2) A cheque received from a customer was credited to cash and correctly recognised in receivables (3) A purchase of non-current assets was omitted from the accounting records (4) Rent received was included in the trial balance as a debit balance

Options :

A : 1 and 2

B : 1 and 3

C : 2 and 3

D : 2 and 4

Answer: D

Question 5

Sam rents his second home. During the current year, he reported a $40,000 net loss from the rental. Assume Sam actively participates in the rental activity and no phase-out limitations apply. What is the greatest amount of the rental loss that Sam can deduct against ordinary income in the current year?

Options :

A : $25,000

B : $0

C : $40,000

D : $5,000

Answer: A

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