Mixed Deck — All CCA Topics Flashcards

Which assertion addresses whether transactions are recorded in the correct accounting period?

Answer: Cutoff

The cutoff assertion ensures that transactions and events are recorded in the proper accounting period, preventing premature or delayed revenue and expense recognition.

Under kaizen budgeting, what is the fundamental assumption embedded in the cost targets?

Answer: Continuous improvement will reduce costs incrementally over each budget period

Kaizen budgeting builds in expected efficiency gains, requiring managers to progressively reduce costs compared to prior periods.

A project has a positive NPV. What does this indicate?

Answer: The project creates value by earning more than the required rate of return

A positive NPV means the present value of cash inflows exceeds the present value of outflows, indicating the project generates returns above the cost of capital.

Throughput accounting measures organizational performance primarily by focusing on:

Answer: The rate at which the system generates money through sales

Throughput accounting, based on the Theory of Constraints, prioritizes maximizing throughput (sales minus truly variable costs) over managing cost allocations.

Under the AICPA Code of Professional Conduct, which fundamental principle requires a CPA to be straightforward and honest in professional and business relationships?

Answer: Integrity

The integrity principle requires CPAs to be straightforward and honest, avoiding subordination of professional judgment to client or employer pressure.

The DuPont analysis breaks return on equity (ROE) into which three components?

Answer: Profit margin, asset turnover, financial leverage

DuPont analysis decomposes ROE into net profit margin × asset turnover × equity multiplier (financial leverage).

A company discovers that a single employee can both approve purchase orders and authorize payments. This represents a failure in which internal control principle?

Answer: Segregation of duties

Segregation of duties requires that no single employee controls all phases of a transaction to reduce fraud and error risk.

In a common-size income statement, all line items are expressed as a percentage of:

Answer: Net revenue (sales)

Common-size income statements express each line item as a percentage of net revenues, enabling comparisons across companies or periods.

Which of the following is considered a spontaneous source of financing?

Answer: Accounts payable arising from credit purchases

Accounts payable arise automatically (spontaneously) from normal business operations without requiring formal financing arrangements.

Why is the statement of cash flows important?

Answer: It shows cash inflows and outflows

It helps assess a company’s liquidity and financial flexibility by showing how cash is generated and used.

Which financial instrument locks in an exchange rate for a future transaction, obligating both parties to exchange currencies at a specified rate and date?

Answer: Foreign exchange forward contract

A foreign exchange forward contract obligates both buyer and seller to exchange currencies at a predetermined rate on a future settlement date, eliminating exchange rate uncertainty.

A calendar-year corporation's estimated tax payments are due on which dates?

Answer: March 15, June 15, September 15, December 15

Corporate estimated tax payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year (April, June, September, December for calendar-year corps).

What is the primary role of a board of directors' audit committee?

Answer: To oversee the financial reporting process, internal controls, and the external auditor relationship

The audit committee oversees financial reporting integrity, monitors internal control systems, and serves as the direct link between the board and the external auditors.

Which of the following would be a red flag in regulatory compliance?

Answer: Late or missing tax filings

Repeated late tax filings can indicate poor financial management and increase scrutiny from regulators.

When an organization chooses to accept a risk because the cost of controlling it exceeds the potential benefit, this is called:

Answer: Risk acceptance

Risk acceptance is the deliberate decision to tolerate a risk, typically because the cost-benefit analysis shows that controls would cost more than the risk's expected impact.

What is the purpose of a dividend discount model (DDM)?

Answer: To estimate the intrinsic value of a stock based on expected future dividends discounted to present value

The DDM values a stock as the present value of all expected future dividend payments, using the required rate of return as the discount rate.

A U.S. company receives a $500,000 dividend from a 100%-owned foreign subsidiary. Under the participation exemption (Section 245A), what portion of this dividend may be deducted?

Answer: 100%

Section 245A provides a 100% dividends-received deduction for foreign-source dividends received from a 10%-or-more owned foreign corporation.

A company's accounts receivable turnover ratio decreased from 12 to 8 year-over-year. This most likely indicates:

Answer: Slower collection of receivables or looser credit policies

A declining receivables turnover ratio means accounts receivable are being collected less frequently, suggesting slower collections or more lenient credit terms.

Under what circumstance would an auditor issue a qualified opinion rather than an adverse opinion?

Answer: When there is a material but not pervasive departure from GAAP

A qualified opinion ('except for') is issued when a misstatement is material but not pervasive; an adverse opinion is issued when misstatements are material AND pervasive.

Which audit procedure involves examining documents, records, and assets?

Answer: Inspection

Inspection involves examining physical documents, records, or tangible assets to obtain audit evidence about their existence, condition, or ownership.