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18. Which of the following serves as the highest authority

Customer Question

18. Which of the following serves as the highest authority for tax research, planning, and compliance activities?
a.   Internal Revenue Code
b.     Income Tax Regulations
c.     Revenue Rulings
d.     Revenue Procedures

19. Investigation of a tax problem that involves a closed-fact situation means that
a.     future events may be planned and controlled.
b.     the statute of limitations on the client's tax return is still open.
c.     the client's transactions have already occurred and the tax questions must now be resolved.
d.     research is primarily concerned with applying the law to the facts as they exist.

21. Witten Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:
Estimated annual overhead cost     $1,200,000
Actual annual overhead cost     $1,150,000
Estimated machine hours     300,000
Actual machine hours     280,000
a.     $1,120,000 applied and $30,000 underapplied
b.     $1,200,000 applied and $30,000 overapplied
c.     $1,120,000 applied and $30,000 overapplied
d.     $1,150,000 applied and neither under- nor overapplied

22. Which of the following is not an element of manufacturing overhead?
a. factory employee’s salary.
b. depreciation on the factory.
c. plant manager’s salary.
     d. factory repairman’s wages

24. Individuals or entities whom the auditor either knew or should have known would rely on the audit report in making business and investment decisions are:
     a.     third parties.
     b.     foreseen beneficiaries.
     c.     foreseeable parties.
     d.     secondary beneficiaries.
26. When Jason contacts a tax advisor to inform him that he has sold some stock at a loss, the tax advisor is faced with
     a.     an open-fact situation.
     b.     a closed-fact situation.
     c.     a recognized-fact situation.
     d.     a restricted-fact situation.

28. In order for a plaintiff to recover against an auditor under the 1933 Securities Act, he or she must normally prove:
     a.     reliance on the financial statements.
     b.     gross negligence on the part of the auditor.
     c.     the financial statements were materially false or misleading.     
     d.     ordinary negligence on the part of the auditor.

29. When financial statements are determined to be false or misleading, the auditor’s best defense against a plaintiff bringing suit under the 1933 Securities Act would be:
     a.     due diligence.
     b.     lack of privity.
     c.     contributory negligence.
     d.     lack of intent.

30. Vertical equity means that
     a.     taxpayers with the same amount of income pay the same amount of tax.
     b.     taxpayers with larger amounts of income should pay more tax than taxpayer’s with lower amounts of income.
     c.     all taxpayers should pay the same tax.
     d.     none of the above.

32. Under the time-and-material-pricing approach, the charges for any particular job include each of the following except the
     a.     labor charge.
     b.     charge for materials.
     c.     material loading charge.
     d.     overhead charge.

35. All of the following are classified as flow-through entities for tax purposes except
     a.     partnerships
     b.     c corporations
     c.     s corporations
     d.     limited liability companies

36. The concept of materiality is defined by the Financial Accounting Standards Board in terms of the judgment of the:
     a.     auditor.
     b.     preparer.
     c.     FASB members.
     d.     users.
37. Which of the following is included in the cost of goods manufactured under absorption costing but not under variable costing?
     a.     Direct materials
     b.     Variable factory overhead
     c.     Fixed factory overhead
     d.     Direct labor

38. Which of the following would not be an important aspect of basic financial statement assertions about presentation and disclosure:
     a.     Occurrence and rights and obligations.
     b.     Completeness.
     c.     Understandability.
     d.     Internal control.
40. All of the following are executive (administrative) sources of tax law except
a.          Internal Revenue Code.
b.          Income Tax Regulations.
c.          Revenue Rulings.
d.          Revenue Procedures.
42. Which of the following capital budgeting techniques explicitly takes the time value of money into consideration?
     a.     Annual rate of return
     b.     Internal rate of return
     c.     Net present value
     d.     Both (b) and (c) above

43. The transfer pricing approach that does not reflect the selling division’s true profit-ability is the
     a.     cost-based approach.
     b.     market-based approach.
     c.     negotiated price approach.
     d.     time-and-material-pricing approach

44. The highest source of primary tax law is a (the)
     a.     Revenue Rulings.
     b.     Revenue Procedures.
     c.     Treasury Regulations.
     d.     Internal Revenue Code.   

45. During the course of an audit, a CPA discovers an error in a prior return. According to
     the Statements on Standards for Tax Services, the CPA should
     a.     ask the client for permission to disclose the error to the IRS.
     b.     withdraw from the engagement.
     c.     inform the IRS of the error, regardless of whether the client grants permission.
     d.     correct the error in the current year’s tax return.

46. Which one of the following reports serves as the primary communication of audit findings?
     a.     the auditor’s report on internal controls.
     b.     the auditor’s report on financial statements
     c.     the auditor’s report on disagreements with management.
     d.     the auditor’s report on significant audit adjustments.

48. A client wants to take a tax return position with less than a 10% probability of being
     upheld in court. The CPA should
     a.     take the client’s desired position, but not sign the tax return.
     b.     inform the client that the position does not have a realistic possibility of success.
     c.     ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position.
     d. take the client’s desired position and sign the return as usual
Submitted: 8 years ago.
Category: Homework