Question 1

LOS.intro.wrkcap.mgmt.0020.wml
AICPA.090576BEC-SIM
LOS: LOS.intro.wrkcap.mgmt.0020.wml
Lesson Reference: Introduction to Working Capital Management
Difficulty: medium
Bloom Code: 4
When a financial manager takes action to minimize the firm's investment in current assets, which one of the following risks is likely to increase?
Accounts receivable defaults may increase.
Inventory spoilage may increase.
Inventory shortages may increase.
Inventory obsolescence may increase.

Rationale
 Accounts receivable defaults may increase.
Reducing investment in current assets is not likely to increase the risk that customers will default on obligations. To the extent that accounts receivable
are reduced, more risky customers may not be granted credit and customer defaults may decrease. Excessive reduction in the level of accounts
receivable, however, may deny credit to customers who would otherwise be creditworthy and result in lost sales. Reducing investment in current assets
is likely to increase the risk that inventory shortages will increase.

Rationale
 Inventory spoilage may increase.
Reducing investment in current assets is not likely to increase the risk that inventory spoilage will increase. To the extent inventory is reduced,
inventory management may improve and inventory spoilage actually decrease. Excessive reductions in inventory, however, may result in inventory
shortages and an inability to meet production requirements.

Rationale
 Inventory shortages may increase.
Reducing investment in current assets is likely to increase the risk that inventory shortages will increase. Excessive reductions in inventory may result in
inventory shortages, which cause interruptions in operations and an inability to meet production requirements.

Rationale
 Inventory obsolescence may increase.
Reducing investment in current assets is not likely to increase the risk that inventory obsolescence will increase. To the extent inventory is reduced,
inventory management may improve and inventory obsolescence actually decrease. Excessive reductions in inventory, however, may result in
inventory shortages and an inability to meet production requirements.
Question 2
LOS.itl.trans.prciss.0020.wml
AICPA.101256BEC-SIM
LOS: LOS.itl.trans.prciss.0020.wml
Lesson Reference: International Transfer Price Issue
Difficulty: medium
Bloom Code: 2
Which of the following is not a common basis for establishing a transfer price between affiliated entities?
Costs incurred by the selling affiliate.
Costs incurred by the buying affiliate.
Fair value based on the price in the market.
Price negotiated between affiliates.

Rationale
 Costs incurred by the selling affiliate.
The costs incurred by the selling affiliate are a common basis for establishing a transfer price between affiliated entities. Costs taken into account in
establishing a transfer price may be variable costs, variable plus certain fixed costs, or full costs. The costs incurred by the buying affiliate are not a
common basis for establishing a transfer price.

Rationale
 Costs incurred by the buying affiliate.
Costs incurred by the buying affiliate is not a common basis for establishing a transfer price between affiliated entities. The transfer price would
constitute an element of cost in determining (total) costs incurred by the buying affiliate; costs to the buying affiliate would not establish the transfer
price paid by the buying affiliate.

Rationale
 Fair value based on the price in the market.
Fair value based on the price in the market is a common basis for establishing a transfer price between affiliated entities. Costs incurred by the buying
affiliate is not a common basis for establishing a transfer price.

Rationale
 Price negotiated between affiliates.
A price negotiated between affiliates is a common basis for establishing a transfer price between affiliated entities. Costs incurred by the buying affiliate
is not a common basis for establishing a transfer price.
Question 3
LOS.curr.exchng.rtiss.0030.wml
aicpa.aq.curr.exchng.rtiss.004_17
LOS: LOS.curr.exchng.rtiss.0030.wml
Lesson Reference: Currency Exchange Rate Issue
Difficulty: hard
Bloom Code: 4
A company considers investing $20 million in a foreign company whose local currency is under pressure. The company suspects that the exchange rate may
fluctuate soon. The exchange rate at the time of the investment is 2.57 to $1.00. After the investment, the exchange rate changes to 3.15 to $1.00. What is the
change in the value of the company's investment in U.S. dollars?
18.4% increase.
18.4% decrease.
22.6% increase.
22.6% decrease.

Rationale
 18.4% increase.
Incorrect. While the percentage change (18.4%) is correct, the dollar value of the investment will decrease, not increase. The percentage change is
computed by first converting the initial investment to its foreign currency value at the date of investment; that is: $20,000,000 × 2.57 = 51,400,000 FC
units. Next, the dollar value of the investment is determined after the change in exchange rate; that is: 51,400,000 FC / 3.15 = $16,317.400. Then the
percentage change in the dollar value of the investment is determined; that is: $16,317,400 / $20,000,000 = 81.59%. Finally, since the dollar value of the
investment after the change in exchange rate is only 81.59% of its prior value, there is a loss of 100.00% – 81.6% = 18.4% (decrease).

Rationale
 18.4% decrease.
Correct! The percentage change is computed by first converting the initial investment to its foreign currency value at the date of investment; that is:
$20,000,000 × 2.57 = 51,400,000 FC units. Next, the dollar value of the investment is determined after the change in exchange rate; that is: 51,400,000 FC
/ 3.15 = $16,317.400. Then the percentage change in the dollar value of the investment is determined; that is: $16,317,400 / $20,000,000 = 81.59%.
Finally, since the dollar value of the investment after the change is exchange rate is only 81.59% of its prior value, there is a loss of 100.00% – 81.6% =
18.4% (decrease). [Alternative percentage calculation: $20,000,000 – $16,317,400 = $3,682,600 / $20,000,000 = 18.4% (decrease).]

Rationale
 22.6% increase.
Incorrect. This answer incorrectly measures the change in value of the investment based on the percentage change in foreign currency units, not on the
percentage change measured in dollars. Thus, this incorrect calculation is the initial investment $20,000,000 × 2.57 = 51,400,000 FC units less the
investment after the exchange rate change as $20,000,000 × 3.15 = 63,000,000, with a difference of 63,000,000 FC – 51,400,000 FC = 11,600,000 FC /
51,400,000 = 22.6%, an incorrect answer. Further, this answer choice expresses an increase in value, when the investment decreased in value.

Rationale
 22.6% decrease.
Incorrect. Although this answer correctly indicates a decrease in value, it incorrectly measures the change in value of the investment based on the
percentage change in foreign currency units, not on the percentage change measured in dollars. Thus, this incorrect calculation is the initial investment
$20,000,000 × 2.57 = 51,400,000 FC units less the investment after the exchange rate change as $20,000,000 × 3.15 = 63,000,000, with a difference of
63,000,000 FC – 51,400,000 FC = 11,600,000 FC / 51,400,000 = 22.6%, an incorrect answer.
Question 4
LOS.fin.val.0050.wml
aqbec.fin.val.001_0120
LOS: LOS.fin.val.0050.wml
Lesson Reference: Introduction to Financial Valuation
Difficulty: medium
Bloom Code: 3
Allen Harvey, CPA, is preparing personal financial statement in connection with a tax and estate planning engagement for a client. In determining the fair
value of the client’s personal residence for the personal financial statements, which of the following approaches is most likely to be used?
Income approach
Cost approach
Sales comparison approach
Discounted cash flow approach

Rationale
 Income approach
Incorrect. The income approach would not be the most likely approach to use in determining the fair value of a personal residence. This approach is
commonly used when the asset being valued generates future amounts of economic benefit (i.e., cash flows, earnings, etc.).

Rationale
 Cost approach
Incorrect. The cost approach would not be the most likely approach to use in determining the fair value of a personal residence. This approach is
commonly used to determine the amount required to reproduce an existing asset and is most appropriately used in valuing specialized assets.

Rationale
 Sales comparison approach
Correct! The sales comparison approach would be the most likely approach to use in determining the fair value of a personal residence. This approach,
a form of the market approach, uses prices and other relevant information generated by market transactions involving assets or liabilities that are
identical or comparable to those being valued.

Rationale
 Discounted cash flow approach
Incorrect. The discounted cash flow (DCF) approach would not be the most likely approach to use in determining the fair value of a personal residence.
The DCF approach is one of the ways of converting future cash flows or earnings amounts to a current fair value when the income approach is used.
Question 5
LOS.mang.cyber.risk.0030.wml
tb.mang.cyber.risk.001_17
LOS: LOS.mang.cyber.risk.0030.wml
Lesson Reference: Managing Cyber Risk: Part I—Applying COSO Principles to Cyber Risk
Difficulty: easy
Bloom Code: 2
Which of the following statements is false (i.e., untrue)?
External parties can help prioritize resources to prevent and manage cyber risks.
External parties should always be informed about cyber incidents.
External, financial statement auditors are unavailable as consultants related to cyber risks.
External communication about cyber security may be relevant to financial analysts.

Rationale
 External parties can help prioritize resources to prevent and manage cyber risks.
Incorrect. External parties can help prioritize resources to prevent and manage cyber risks is a true statement. For example, IT security experts provide
useful information about cyber risks and can help organizations determine how to best allocate resources to address these risks.

Rationale
 External parties should always be informed about cyber incidents.
Correct! This is a false statement. Communication about cyber incidents to external parties should be selective and appropriate to their roles. For
example, few banks publicly announce when they have lost money in a theft or cyber-hack.

Rationale
 External, financial statement auditors are unavailable as consultants related to cyber risks.
Incorrect. This is a true statement. External financial statement auditors cannot serve as consultants related to cyber risks.

Rationale
 External communication about cyber security may be relevant to financial analysts.
Incorrect. This is a true statement. Financial analysts must assess company risks. Information about cyber security is relevant to their assessment of
company risks.
Question 6
LOS.curr.exchng.rtiss.0040.wml
aq.curr.exchng.rtiss.001_2017
LOS: LOS.curr.exchng.rtiss.0040.wml
Lesson Reference: Currency Exchange Rate Issue
Difficulty: hard
A significant decline in the exchange rate of the U.S. dollar generally will have which of the following effects?
It will hurt all U.S. businesses.
It will benefit U.S. importers.
It will benefit U.S. exporters.
It will benefit all U.S. businesses.

Rationale
 It will hurt all U.S. businesses.
A significant decline in the exchange rate of the U.S. dollar generally will not hurt all U.S. businesses. A decline in the U.S. dollar will make U.S. goods
less expensive for foreign buyers, which will help (not hurt) U.S. businesses that export goods.

Rationale
 It will benefit U.S. importers.
A significant decline in the exchange rate of the U.S. dollar generally will not benefit U.S. importers. A decline in the U.S. dollar will make foreign goods
more expensive for U.S. buyers, which will hurt (not benefit) U.S. importers.

Rationale
 It will benefit U.S. exporters.
(Correct!) A significant decline in the exchange rate of the U.S. dollar generally will benefit U.S. exporters. A decline in the U.S. dollar will make U.S.
goods less expensive for foreign buyers, which will help U.S. businesses that export goods.

Rationale
 It will benefit all U.S. businesses.
A significant decline in the exchange rate of the U.S. dollar generally will not benefit all U.S. businesses. A decline in the U.S. dollar will make foreign
goods less expensive for foreign buyers, which will help U.S. businesses that export goods, but will not affect U.S. businesses that do not export goods.
Question 7
LOS.mang.cyber.risk.0010.wml
aq.mang.cyber.risk.002_2017
LOS: LOS.mang.cyber.risk.0010.wml
Lesson Reference: Managing Cyber Risk: Part I—Applying COSO Principles to Cyber Risk
Difficulty: hard
A consortium of accounting firms shares information about security breaches, including descriptions of cyber attackers and the exploitation methods that
they use. This is an IT application of the COSO principle of:
The organization obtains or generates and uses relevant, quality information to support the functioning of internal control.
The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support
the functioning of internal control.
The organization communicates with external parties regarding matters affecting the functioning of internal control.
The organization selects and develops control activities that contribute to the mitigation of risks to the achievement of objectives to
acceptable levels.

Rationale
 The organization obtains or generates and uses relevant, quality information to support the functioning of internal control.
This statement is not the best answer. Although this is an example of obtaining information to support the functioning of internal control, another
answer is more descriptive of the activity mentioned. Therefore, this is an incorrect answer.

Rationale
 The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support
the functioning of internal control.
This statement is inaccurate. Therefore, this is an incorrect answer. This is an example of externally communicating information to support the
functioning of internal controls.

Rationale
 The organization communicates with external parties regarding matters affecting the functioning of internal control.
Correct! This statement is accurate. The example illustrates external communication (with a consortium of accounting firms) about internal control.

Rationale
 The organization selects and develops control activities that contribute to the mitigation of risks to the achievement of objectives to
acceptable levels.
This statement is false. Therefore, this is an incorrect answer. This is not an example of developing control activities to support internal controls.
Question 8
CGIC-0030
Lesson Reference: Introduction to COSO, Internal Control, and the COSO Cube
Difficulty: medium
Which of the following is not a limitation of an enterprise risk management system?
Risk relates to the future that is uncertain.
Collusion among two or more individuals can result in enterprise risk management failure.
Companies cannot avoid risk.
Enterprise risk management is subject to management override.

Rationale
 Risk relates to the future that is uncertain.
This answer is incorrect. It is a limitation of enterprise risk management.

Rationale
 Collusion among two or more individuals can result in enterprise risk management failure.
This answer is incorrect. It is a limitation of enterprise risk management.

Rationale
 Companies cannot avoid risk.
This answer is correct. This is a fact that results in the need to have enterprise risk management.

Rationale
 Enterprise risk management is subject to management override.
This answer is incorrect. It is a limitation of enterprise risk management.
Question 9
CGIC-0028
Lesson Reference: Introduction to COSO, Internal Control, and the COSO Cube
Difficulty: medium
Layton Company has implemented an enterprise risk management system and has responded to a particular risk by purchasing insurance. Such a response
is characterized by COSO’s Enterprise Risk Management Framework as:
Avoidance.
Sharing.
Acceptance.
Reduction.

Rationale
 Avoidance.
This answer is incorrect. Avoidance involves exiting the activity that gives rise to the risk.

Rationale
 Sharing.
This answer is correct. Sharing involves reducing risk likelihood or impact by transferring or sharing a portion of the risk.

Rationale
 Acceptance.
This answer is incorrect. Acceptance involves taking no action.

Rationale
 Reduction.
This answer is incorrect. Reduction involves taking action to reduce likelihood or impact.
Question 10
LOS.it.rsk.info.stms.0010.wml
tb.it.rsk.info.stms.003_17
LOS: LOS.it.rsk.info.stms.0010.wml
Lesson Reference: Risks and Controls in Computer-Based Accounting Information Systems
Difficulty: medium
Bloom Code: 3
Jones and Willy recently implemented an automated accounting system to replace their manual accounting system. While setting up the system, they find
that:
They need to permanently run the manual and automated accounting systems as a control over processing.
The automated system requires controls related to people, software, and hardware.
Access controls are of less importance in the new system.
The company's external auditors are best qualified to set up the new system.

Rationale
 They need to permanently run the manual and automated accounting systems as a control over processing.
Incorrect. This is not a feasible solution.

Rationale
 The automated system requires controls related to people, software, and hardware.
Correct! This is a true statement about automated systems.

Rationale
 Access controls are of less importance in the new system.
Incorrect. Access controls are more important in automated systems.

Rationale
 The company's external auditors are best qualified to set up the new system.
Incorrect. External auditors are not allowed to create accounting systems for their clients. This violates the Sarbanes-Oxley Act.
Question 11
LOS.oprtnl.actvt.meas.0010.wml
aicpa.aq.oprtnl.actvt.meas.002_17
LOS: LOS.oprtnl.actvt.meas.0010.wml
Lesson Reference: Operational Activity Measures
Difficulty: medium
Bloom Code: 3
The main reason that a firm would strive to reduce the number of days' sales outstanding is to increase
Accounts receivable.
Cash.
Contribution margin.
Cost of goods sold.

Rationale
 Accounts receivable.
Incorrect. The number of days' sales outstanding measures the average number of days required to collect receivables. A reduction in the number of
days' sales outstanding would serve to reduce (not increase) the amount of accounts receivable outstanding by collecting cash sooner.

Rationale
 Cash.
Correct! The number of days' sales outstanding measures the average number of days required to collect receivables. A reduction in the number of
days' sales outstanding would serve increase cash by collecting cash sooner and reducing the amount of accounts receivable outstanding.

Rationale
 Contribution margin.
Incorrect. The number of days' sales outstanding is concerned with accounts receivable, not with cost of goods sold. The number of days' sales
outstanding measures the average number of days required to collect receivables. A reduction in that number would affect cash (collected sooner) and
accounts receivable (satisfied sooner) but would not affect cost of goods sold.

Rationale
 Cost of goods sold.
Incorrect. The number of days' sales outstanding does not affect the contribution margin. The contribution margin is a measure of the amount by which
selling price (revenues) exceeds the variable cost incurred in generating those revenues. The number of days' sales outstanding measures the average
number of days required to collect receivables and does not affect either revenues or variable costs.
Question 12
LOS.oprtnl.actvt.meas.0020.wml
AICPA.110513BEC
LOS: LOS.oprtnl.actvt.meas.0020.wml
Lesson Reference: Operational Activity Measures
Difficulty: medium
Bloom Code: 3

A corporation manages inventory performance by monitoring its inventory turnover. Selected financial records for the corporation are as follows:

Year 1 Year 2 Year 3

The beginning finished goods inventory for year 2 was 20% of year 2 sales. The ending finished goods inventory for year 2 was 18% of year 3 sales. What was
the corporation's inventory turnover for year 2?

1.34
2.83
3.03
3.13

Rationale
 1.34
Inventory turnover measures the number of times that inventory is acquired and sold or used during a period. It is calculated as: Cost of Goods
Sold/Average Inventory (i.e., beginning inventory + ending inventory/2). In this question, the cost of goods sold is determined using the inverse of the
gross annual profit percentage (which is the gross annual cost percentage), or $1,062,500 x (1.0 - .30) = $1,062,500 x .70 = $743,750, the cost of goods
sold. This incorrect answer (1.34) resulted from using the gross annual profit percentage, rather than its inverse, in computing the cost of goods sold.
Thus, this incorrect calculation is: ($1,062,500 x .30)/$237,560, or $318,750/$237,560 = 1.34, an incorrect answer. The correct answer is 3.13.

Rationale
 2.83
Inventory turnover measures the number of times that inventory is acquired and sold or used during a period. It is calculated as: Cost of Goods
Sold/Average Inventory (i.e., beginning inventory + ending inventory/2). In this question, the cost of goods sold is determined using the inverse of the
gross annual profit percentage (which is the gross annual cost percentage), or $1,062,500 x (1.0 - .30) = $1,062,500 x .70 = $743,750, the cost of goods
sold. The average inventory is determined using the sum of beginning plus ending inventory divided by 2. This incorrect answer (2.83) resulted from
using the ending inventory for year 2, rather than the average. That ending inventory is $1,459,000 x .18 = $262,620. Thus, this incorrect calculation is:
($1,062,500 x .70)/$262,620, or $743,750/$262,620 = 2.83, an incorrect answer. The correct answer is 3.13.

Rationale
 3.03
Inventory turnover measures the number of times that inventory is acquired and sold or used during a period. It is calculated as: Cost of Goods
Sold/Average Inventory (i.e., beginning inventory + ending inventory/2). In this question, the cost of goods sold is determined using the inverse of the
gross annual profit percentage (which is the gross annual cost percentage), or $1,062,500 x (1.0 - .30) = $1,062,500 x .70 = $743,750, the cost of goods
sold. This incorrect answer (3.03) results from using incorrect values to determine the average inventory. Specifically, an incorrect average inventory of
$245,462 is used, which results in a calculation of $743,750/$245,462 = 3.03, and incorrect answer. The correct answer is 3.13.

Rationale
 3.13
Inventory turnover measures the number of times that inventory is acquired and sold or used during a period. It is calculated as: Cost of Goods
Sold/Average Inventory (i.e., beginning inventory + ending inventory/2). In this question, the cost of goods sold is determined using the inverse of the
gross annual profit percentage (which is the gross annual cost percentage), or $1,062,500 x (1.0 - .30) = $1,062,500 x .70 = $743,750, the cost of goods
sold. The average inventory is determined using the percentage of sales that constitutes inventory as give in the facts. Specifically, year 2 beginning
inventory is $1,062,500 x .20 = $212,500 and year 2 ending inventory is $1,459,000 x .18 = $262,620. The average is the sum of beginning plus ending
divided by 2, or $212,500 + 262,620 = $475,120/2 = $237,560, the average inventory. Therefore, the inventory turnover is: $743,750/$237,560 = 3.13 - the
inventory turned over 3.13 times during year 2.
Question 13
LOS.macro.agdem.0040.wml
ECON-0073B
LOS: LOS.macro.agdem.0040.wml
Lesson Reference: Aggregate Demand
Difficulty: medium
Assume that the United States Congress passes a tax law that provides for a "rebate" to taxpayers. One of the goals of the rebate is
Increase consumer disposable income and expand the economy.
Increase consumer disposable income and contract the economy.
Decrease consumer disposable income and expand the economy
Decrease consumer disposable income and contract the economy.

Rationale
 Increase consumer disposable income and expand the economy.
Increasing the amount of funds available to the consumer increases disposable income that should stimulate economic activity. Consumers will spend
the additional funds and correspondingly expand the economy.

Rationale
 Increase consumer disposable income and contract the economy.
This is an erroneous statement about the effects of the rebate.

Rationale
 Decrease consumer disposable income and expand the economy
This is an erroneous statement about the effects of the rebate.

Rationale
 Decrease consumer disposable income and contract the economy.
This is an erroneous statement about the effects of the rebate.
Question 14
LOS.fincl.mgmt.intro.0010.wml
AICPA.090531BEC-SIM
LOS: LOS.fincl.mgmt.intro.0010.wml
Lesson Reference: Introduction to Financial Management
Difficulty: medium
Bloom Code: 2
Which of the following financial management-related areas are considered long-term issues?
Trade Accounts Payable Inventories Capital Budgeting
Yes Yes Yes
No Yes Yes
No No Yes
Yes No Yes

Rationale
 Yes Yes Yes
Trade accounts payable and inventories are not considered long-term issues; capital budgeting is considered a long-term issue.

Rationale
 No Yes Yes
Neither trade accounts payable nor inventories are considered long-term issues; capital budgeting is considered a long-term issue.

Rationale
 No No Yes
Neither trade accounts payable nor inventories are considered long-term issues; capital budgeting is considered a long-term issue.

Rationale
 Yes No Yes
Neither trade accounts payable nor inventories are considered long-term issues, but capital budgeting is considered a long-term issue.
Question 15
LOS.micro.demand.0040.wml
ECON-0022
LOS: LOS.micro.demand.0040.wml
Lesson Reference: Demand
Difficulty: medium
In a competitive market for labor in which demand is stable, if workers try to increase their wage,
employment must fall.
government must set a maximum wage below the equilibrium wage.
firms in the industry must become smaller.
product supply must decrease.

Rationale
 employment must fall.
This answer is correct. If wages rise in a stable market, the quantity demanded for labor will decline and employment will fall. Since the wage rate is the
price of labor, a change in that price would result in a change in quantity demanded for labor.

Rationale
 government must set a maximum wage below the equilibrium wage.
This answer is incorrect. If the government sets the maximum wage below the equilibrium wage, it will have no effect. 

Rationale
 firms in the industry must become smaller.
This answer is incorrect. This is not necessarily true. 

Rationale
 product supply must decrease.
This answer is incorrect. Product supply may or may not decrease. 
Question 16
LOS.data.visual.0030LOS.data.visual.0020
aq.bec.data.visual.003_0319
LOS: LOS.data.visual.0020
LOS: LOS.data.visual.0030
Lesson Reference: Data Visualization
Difficulty: easy
Bloom Code: 2
Typography is the choice of _____ in a visual display while iconography is the choice of ______ in a visual display.
Color, arrangement
Fonts, colors
Fonts, icons
Icons, fonts

Rationale
 Color, arrangement
Incorrect. Color is unrelated to typography; the arrangement of objects in a display is not iconography.

Rationale
 Fonts, colors
Incorrect. Color is not iconography. However, typography is the use of fonts in a display.

Rationale
 Fonts, icons
Correct! Typography is the use of fonts in visual displays. Iconography is the use of icons in visual displays.

Rationale
 Icons, fonts
Incorrect. Icons are iconography, not typography. Fonts are typography, not iconography.
Question 17
LOS.acct.sys.cyc.intro.0020.wml
tb.acct.sys.cyc.intro.002_17
LOS: LOS.acct.sys.cyc.intro.0020.wml
Lesson Reference: The Accounting System Cycle: Introduction
Difficulty: easy
Bloom Code: 2
Which of the following steps in the accounting cycle comes before posting entries to accounts?
Journalize closing entries.
Analyze transactions.
Prepare reports.
Prepare post-closing trial balance.

Rationale
 Journalize closing entries.
Incorrect. Journalize closing entries comes after posting entries to accounts.

Rationale
 Analyze transactions.
Correct! Analyze transactions comes before posting entries to accounts.

Rationale
 Prepare reports.
Incorrect. Prepare reports comes after posting entries to accounts.

Rationale
 Prepare post-closing trial balance.
Incorrect. Prepare post-closing trial balance comes after posting entries to accounts.
Question 18
LOS.itl.trans.prciss.0020.wml
AICPA.040150BEC-SIM
LOS: LOS.itl.trans.prciss.0020.wml
Lesson Reference: International Transfer Price Issue
Difficulty: medium
Bloom Code: 2

Which of the following statements regarding international transfer pricing is/are correct?

I. Firms with operations in multiple nations can manipulate earnings through transfer pricing.

II. The transfer price preferred by a foreign subsidiary manager may be different than the transfer price that maximizes consolidated profits.

Only I is correct.
Only II is correct.
Both I and II are correct.
Neither I nor II is correct.

Rationale
 Only I is correct.
Both I and II are correct.

Rationale
 Only II is correct.
Both I and II are correct.

Rationale
 Both I and II are correct.

Firms can manipulate earnings by using transfer pricing that results in a greater amount of profit attributed to a country with a lower tax rate and lesser
profit attributed to a country with a higher tax rate. As a consequence, tax expense would be reduced and income increased for the consolidated entity.

In addition, because unit profits are often used to evaluate performance, subsidiary managers will prefer a transfer price that maximizes their unit
profits, whether or not it maximizes consolidated profits.

Rationale
 Neither I nor II is correct.
Both I and II are correct.
Question 19
LOS.erm.cloud.computing.0020.wml
aq.erm.cloud.computing.004_2017a
LOS: LOS.erm.cloud.computing.0020.wml
Lesson Reference: ERM for Cloud Computing
Difficulty: medium
A cloud computing system solution integrates which of the following elements?
A business problem, a vendor contract, and a service delivery model
A business process, a deployment model, and a service delivery model
A private cloud, a business process, and a service delivery model
A service delivery model, a board discussion, and a deployment model.

Rationale
 A business problem, a vendor contract, and a service delivery model
This is incorrect. A business problem and a vendor contract are not part of the core elements of a cloud computing solution.

Rationale
 A business process, a deployment model, and a service delivery model
Correct! Effective cloud solutions require considering and integrating a relevant business process, a deployment model and a service delivery model.

Rationale
 A private cloud, a business process, and a service delivery model
This is incorrect. A private cloud may or may not be part of a cloud computing solution.

Rationale
 A service delivery model, a board discussion, and a deployment model.
This is incorrect. The board may or may not need to discuss a cloud computing solution, depending on its complexity and risk profile.
Question 20
LOS.macro.pricelev.0020.wml
ECON-0062B
LOS: LOS.macro.pricelev.0020.wml
Lesson Reference: Price Levels and Inflation/Deflation
Difficulty: medium

The most effective fiscal policy program to help reduce demand-pull inflation would be to

(This question is CMA adapted)

Decrease the rate of growth of the money supply.

Rationale
 Decrease the rate of growth of the money supply.
This statement involves monetary policy.

Rationale
 Increase both taxes and government spending.
Increasing government spending would feed demand-pull inflation.

Rationale
 Decrease taxes and increase government spending.
Increasing government spending would feed demand-pull inflation.

Rationale
 Increase taxes and decrease government spending.
The most effective government policy would involve reducing demand that could be done by taxation and reduced government spending.