North Point Ltd manufactures and sells compact discs. The raw material used for the discs is purchased from Compact Disk Pty Ltd. The company has a computerised system but it is not net-worked and each department has its own stand-alone computer system. An order for the purchase material is raised by the stores department by completing two copies purchase requisition (PR). The top copy of PR is sent to purchasing department. When Goods Received Report (GRR) is received by the stores department, the PR is reconciled with the second copy and it is sent to the accounts department after updating the inventory records.

Purchasing Department approves the purchase requisition and prepares three copies of purchase order (PO). The top copy of PO is sent to the supplier, second copy to the Accounts Payable and third copy to Receiving Department.

Receiving Department reconciles the goods received with the PO and prepares two copies of GRR. The top copy is forwarded to stores department, second copy to the Accounts Payable.

Accounts Payable Department reconciles and checks for accuracy of the PR, PO, GRR and supplier’s invoice and forwards them to the group accountant with a cheque requisition form attached for the payment to the suppliers after updating the accounts payable records to indicate that the accounts have been settled.

“SECTION I – MULTIPLE CHOICE (Choose your response from one of the possible answers provided)1.Which of the following is not a tort?a.breach of contractb.Negligencec.gross negligenced.Fraude.ordinary negligence2.The Fund of Funds case illustrated that auditors could be found liable for failure to report wrong-doings discovered:a.Only on audit engagements for a particular client.b.on any type of engagement for a particular client.c.Only on special fraud audits conducted under separate contract.d.even on engagements for other clients.e.even on engagements for consulting clients.3.Under the 1977 Restatement of Torts, a party may recover for the auditor’s ordinary negligence even when the auditor has no knowledge of the:a.client’s intent to distribute the financial statements.b.names or identities of the expected users.c.type of transaction the information is to be used to support.d.fact that the client’s management created fictitious transactions.e.fact that the client’s management had knowledge of materialmisrepresentations in the financial statements.4.All of the following are true with respect to the plaintiff in a suit under the 1933 Securities Act except the plaintiff:a.may be any person acquiring securities described in the registration statement, whether or not he or she is a client of the auditor.b.must establish that his or her loss resulted in whole or in part from causes other than the false or misleading statements.c.must base the claim on an alleged material false or misleading financial statement contained in the registration statement.d.does not have to prove reliance on the false or misleading statement or that the loss suffered was the proximate result of the statement if purchase was made before the issuance of an income statement covering a period of at least twelve months following the effective date of the registration statement.e.does not have to prove that the auditors were negligent or fraudulent in certifying the financial statements involved.5.If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:a.fraudulent misconduct.b.gross misconduct.c.ordinary negligence.d.contributory negligence.e.gross negligence.6.The rights and obligations assertion applies to:a.current liability items only.b.revenue and expense items only.c.both income statement and balance sheet items.d.Assets that are not owned by the company.e.balance sheet items only.7.Which of the following statements about understanding internal control is not true:a.The auditor uses the knowledge of the system of internal control to design further audit procedures to collect evidence.b.In the presence of a strong system of internal control, the auditor may choose to collect less evidence about transactions or balances.c.In the audit of a private company, it is necessary to express an opinion on the system of internal control over financial reporting.d.A thorough understanding of the system of internal control assists the auditor in identifying potential types of misstatements.e.A thorough understanding of the system of internal control assists the auditor in understanding the risk of material misstatements.8.Which of these is not a category of substantive tests?a.Initial procedures.b.Tests of details of balances.c.Tests of details of disclosures.d.Tests of internal controls.e.Tests of details of transactions.9.Managerial accounting applies to each of the following types of businesses excepta.service firms.b.merchandising firms.c.manufacturing firms.d.Managerial accounting applies to all types of firms.10.Managerial accounting informationa.pertains to the entity as a whole and is highly aggregated.b.pertains to subunits of the entity and may be very detailed.c.is prepared only once a year.d.is constrained by the requirements of generally accepted accounting principles.11.Managerial accounting does not encompassa.calculating product cost.b.calculating earnings per share.c.determining cost behavior.d.profit planning.12.Financial statements for external users can be described asa.user-specific.b.general-purpose.c.special-purpose.d.managerial reports.13.Which one of the following would not be classified as manufacturing overhead?a.Indirect laborb.Direct materialsc.Insurance on factory buildingd.Indirect materials14.A manufacturing process requires small amounts of glue. The glue used in the production process is classified as a(n)a.period cost.b.indirect material.c.direct material.d.miscellaneous expense.15.Which one of the following is an example of a period cost?a.A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturerb.Workers’ compensation insurance on factory workers’ wages allocated to the factoryc.A box cost associated with computersd.A manager’s salary for work that is done in the corporate head office16.Which one of the following costs would not be inventoriable?a.Period costsb.Factory insurance costsc.Indirect materialsd.Indirect labor costs17.Which one of the following represents a period cost?a.The VP of Sales’ salary and benefitsb.Overhead allocated to the manufacturing operationsc.Labor costs associated with quality controld.Fringe benefits associated with factory workers18.A manufacturing company reports cost of goods manufactured as a(n)a.current asset on the balance sheet.b.administrative expense on the income statement.c.component in the calculation of cost of goods sold on the income statement.d.component of the raw materials inventory on the balance sheet.Use the following information for questions 19–21.Carly Manufacturing Company’s accounting records reflect the following inventories:Dec. 31, 2008 Dec. 31, 2007Raw materials inventory $369,000 $254,000Work in process inventory 297,500 189,500Finished goods inventory 185,000 147,500During 2008, $469,000 of raw materials were purchased, direct labor costs amounted to $575,000, and manufacturing overhead incurred was $455,000.19.The total raw materials available for use during 2008 for Carly Manufacturing Company isa.$831,000.b.$723,000.c.$615,000.d.$760,000.20.Carly Manufacturing Company’s total manufacturing costs incurred in 2008 amounted toa.$1,530,000.b.$1,492,000.c.$1,384,000.d.$1,276,000.21.If Carly Manufacturing Company’s cost of goods manufactured for 2008 amounted to $1,350,000, its cost of goods sold for the year isa.$1,312,500.b.$1,300,000.c.$1,350,000.d.$1,275,000.22.McHale’s Marine Company reported the following year-end information:Beginning work in process inventory $ 43,000Beginning raw materials inventory 25,000Ending work in process inventory 47,500Ending raw materials inventory 19,500Raw materials purchased 635,000Direct labor 255,000Manufacturing overhead 111,000How much is McHale’s Marine’s cost of goods manufactured for the year?a)$1,000,000b)$1,002,000c)$995,000d)$890,00023.Which one of the following does not appear on the balance sheet of a manufacturing company?a.Finished goods inventoryb.Work in process inventoryc.Cost of goods manufacturedd.Raw materials inventory24.What term describes all activities associated with providing a product or service?a.The manufacturing chainb.The product chainc.The supply chaind.The value chain25.What is one primary benefit of an enterprise resource planning (ERP) system?a.It reduces inventory levels.b.It permits companies to be more streamlined in production.c.It replaces research and development in a company.d.It requires an increased emphasis on product quality.26.What is “balanced” in the balanced scorecard approach?a.The number of products producedb.The emphasis on financial and non-financial performance measurementsc.The amount of costs allocated to productsd.The number of defects found on each product27.Which one of the following is an activity not associated with TQM?a.Tightening the bolts on a chassis so that the frame will not drop outb.Redesigning the gas tank after fuel efficiency standards are not being metc.Verifying the 10 check points associated with producing the highest quality loaf of breadd.Ensuring that the mattress just manufactured meets the standard of comfort of a random factory line worker28.What is ERP’s primary benefit?a.It can eliminate stand alone systems that do not share information easily for management’s use.b.It allows management to rely on the simplest way to utilize information systems in a manufacturing environment.c.It permits line workers to perform accounting and marketing tasks.d.It calculates year end bonuses to a precision not available in traditional information systems management.29.When property is transferred, the gift tax is based ona.replacement cost of the transferred property.b.fair market value on the date of transfer.c.the transferor’s original cost of the transferred property.d.the transferor’s depreciated cost of the transferred property.30.Thomas dies in the current year and has a gross estate valued at $2,000,000. During his lifetime (but after 1976) Thomas had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Thomas’ debts which amount to $300,000. Thomas bequeaths $500,000 to his wife. What is the amount of Thomas’ tax base, the amount on which the estate tax is computed?a.$700,000b.$1,200,000c.$1,500,000d.$2,000,00031.Which of the following statements is incorrect?a.Property taxes are levied on real estate.b.Excise taxes are assessed on items such as gasoline and telephone use.c.Gift taxes are levied on the recipient of a gift.d.The estate tax is based on the fair market value of property at death.32.All of the following statements are true excepta.The net income earned by a sole proprietorship is reported on the owner’s individual income tax return.b.The net income of an S corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the S corporation to individual shareholders is also taxed.c.The net income of C corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the C corporation to individual shareholders is also taxed.d.LLCs are generally taxed as partnerships.33.Rocky and Charlie form RC Partnership as equal partners. Rocky contributes $100,000 into RC while Charlie contributes real estate with a fair market value of $100,000. During the current year, RC earned net income of $600,000. The partnership distributes $200,000 to each partner. The amount that Rocky should report on his individual tax return isa.$0.b.$100,000.c.$200,000.d.$300,000.34.Which of the following individuals is most likely to be audited?a.Lola has AGI of $35,000 from wages and uses the standard deduction.b.Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also received $150,000 salary as a CEO of a corporation.c.Melvin fails to report $150 of dividends from a stock investment. His taxable income is $42,000 and he has no other unusually large itemized deductions or business expenses. A Form 1099 is reported to the IRS.d.None of the above is likely to be selected.35.Title 26 of the U.S. Code includesa.employment taxes only.b.income tax legislation only.c.gift tax and estate tax legislation only.d.all of the tax legislation mentioned above.36.Final regulations often take effect ona.January 1 of the year of their issuance.b.January 1 of the year following their issuance.c.their date of issuance plus one month.d.the date proposed or the date on which temporary regulations were published.37.Which of the following documents is issued by the IRS to a specific taxpayer?a.regulationb.letter rulingsc.revenue rulingd.revenue procedure38.Jerry’s case was handled under the “small tax case procedure.” He does not agree with the findings of the Tax Court. He would like to appeal the decision of the Tax Court. Which one of the following is true?a.There is no appeal.b.He would appeal first to the U.S. Court of Federal Claims.c.He would appeal first to the U.S. Court of Appeals for the Federal Circuit.d.He can appeal the case, but only if the amount of tax involved is greater than $5,000.39.When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable, the court is following the:a.dictum.b.Golsen rule.c.Acquiescence rule.d.Forum shopping rule40.A citator is used to finda.the judicial history of a case.b.the cases which have cited a case subsequent to the issuance of the opinion.c.whether a case has been overturned.d.all of the above.SECTION II – TRUE/FALSE (The response to each question or statement is either True or False)41.The overall objective of a financial statement audit is the expression of an opinion on whether the client’s financial statements are presented fairly, in all material respects, in conformity with GAAS.42.Financial statements include explicit and implicit management assertions.43.The rights and obligations assertion pertains only to balance sheet components.44.In the professional standards, audit risk is defined as the risk that the auditor will appropriately modify his or her opinion on financial statements that do not contain a material misstatement.45.Substantive tests provide evidence as to the fairness of management’s financial statement assertions.46.CPAs normally use engagement letters to describe the scope of services and fee arrangements.47.In preparing closing entries for a manufacturing company, all revenue and expense account balances are closed to a Manufacturing Summary account.48.The focus of a TQM system is to reduce defects in finished products.49.When a change in the tax law is deemed necessary by Congress, the entire Internal Revenue Code must be revised.50.Individuals are the principal taxpaying entities in the federal income tax system