[Sep 12, 2021] IIA-CIA-Part3 Ultimate Study Guide - PracticeVCE
Ultimate Guide to Prepare IIA-CIA-Part3 Certification Exam for Certified Internal in 2021
NEW QUESTION 10
A company} is formulating its plans for the coming year, including the preparation of its cash budget. Historically, 30% of the company's sales are cash sales. The remaining 70% are credit sales with the following collection pattern.
Sales for the first five months of the coming year are forecast as follows.
For the month of April, the total cash receipts from sales and collections on account would be:
- A. US $3,781,600
- B. US $4,025,200
- C. US $4,408,000
- D. US $3,729,968
Answer: A
Explanation:
The cash receipts for April equal April's cash sales US $4,000,000 x 30% = US $1,200,000), 40% of April's credit sales, and 580/o of March's credit sales. Consequently, total cash receipts equal US $3, 78-1,600 [$1,200,000 + $4,000,000 40%x 70%) + $8,600,000 68% 70%)].A bank has two drive-in lanes to serve customers: one attached to the bank itself and one on an island. One teller serves bath stations. The bank is interested in determining the average waiting times of customers and has developed a model based on random numbers. The two key factors are the time between successive car arrivals and the time customers wait in line. Assume that the analysis begins with cars just arriving at bath service windows. bath requiring 3 minutes of service time. Car 1 is the attached window attached to the bank unless that window has more cars waiting than the island window. The lone teller will always serve the car that arrived first. If two cars arrive simultaneously, the one at the attached window will be served before the one at the island.
NEW QUESTION 11
A disadvantage of separating performance evaluations from compensation-increase
decisions is that:
- A. Not enough emphasis is placed on short-run performance.
- B. The employee's performance evaluation does not consider the financial status of the company overall.
- C. Financial rewards may lose their motivational effect.
- D. Employees may not be motivated by good appraisals.
Answer: D
Explanation:
The employee may not be motivated immediately by a good appraisal because of the delay in receipt of any monetary reward. The evaluation also may not be taken as seriously by the employee if compensation is not correlated with performance.
NEW QUESTION 12
When auditing an application change control process, which of the following procedures should be included in the scope of the audit?
1. Ensure system change requests are formally initiated, documented, and approved.
2. Ensure processes are in place to prevent emergency changes from taking place.
3. Ensure changes are adequately tested before being placed into the production environment.
4. Evaluate whether the procedures for program change management are adequate.
- A. 2 and 4 only
- B. 1 and 3 only
- C. 1, 3, and 4 only
- D. 1 only
Answer: C
NEW QUESTION 13
User acceptance testing is more important in an object-oriented development process than in a traditional environment because of the implications of the:
- A. Inheritance of properties in hierarchies.
- B. Lack of a tracking system for changes.
- C. Absence of traditional design documents.
- D. Potential for continuous monitoring.
Answer: A
Explanation:
In object-oriented development, all objects in a class inherit the properties of higher classes in the hierarchy. Thus, changes in one object may affect many other objects, and the extent and effects of errors significantly increase. Testing one object provides no assurance that the objects are properly coordinated. Accordingly, user acceptance testing to verify correct functioning of the whole system becomes more important.
NEW QUESTION 14
The number of shares the entity had outstanding for the year, for the purpose of computing basic earnings per share (BEPS), is:
- A. 65,000
- B. 70,000
- C. 79,000
- D. 76,000
Answer: D
Explanation:
The weighted-average number of shares outstanding for the year 76,000 shares) is used in the BEPS calculation.
NEW QUESTION 15
An entity's receivables collection period is equal to the:
- A. Cash conversion cycle.
- B. Inventory conversion period.
- C. Inventory divided by average daily sales.
- D. Day's sales outstanding.
Answer: D
Explanation:
The day's sales outstanding days of receivables) may be stated as the accounts receivable balance divided by average credit sales per day or as days in the year divided by the receivables turnover. It is the average time required to convert the entity's receivables into cash. Thus, it is also called the receivables collection period.
NEW QUESTION 16
What is Lally's current tax expense for Year 2?
- A. US $1,960,000
- B. US $2,000,000
- C. US $2,032,000
- D. US $1,992,000
Answer: D
Explanation:
The US $5,000,000 of pre-tax profit is reduced by the US $100,000 of interest income not subject to tax. However, the rental income accrued in the previous year is taxable in Year
2. Thus, the profit subject to tax is US $4,980,000. Given a 40% rate, the current tax expense is US $1,992,000.
The following relates to Lally PLC for Year I and Year 2.
Year 2 Year 1 Profit before income taxes US $5,000,000 US $4,000,000 Interest income included above that was not subject to income taxes 100.000 100,000
Profit before income taxes in Year I included rent income of US $80.000 that was not subject to income tax until its receipt in Year 2.
Lally was subject to an effective income tax rate of 40% in Year 1 and Year 2.
NEW QUESTION 17
An entity purchased a new machine for US $' III 610100 by borrowing the required funds from a bank for 180 days. What will be the direct impact of this transaction?
- A. Increase the current ratio and decrease the debt ratio.
- B. Decrease the current ratio and decrease the debt ratio.
- C. Decrease the current ratio and increase the debt ratio.
- D. Increase the current ratio and increase the debt ratio.
Answer: C
Explanation:
The borrowing of funds for 180 days constitutes short-term borrowing. The new machine is a fixed asset. Current liabilities have increased, and current assets have remained constant. Consequently, the current ratio current assets + current liabilities) has decreased. Total debt and total assets increased by the same absolute amount, and the debt ratio total debt - total assets) should have increased. assuming total debt is less than total asset.
NEW QUESTION 18
An entity is currently being sued by a customer. A reliable estimate can be made of the costs that would result from a ruling unfavorable to the entity, and the amount involved is material. The entity's managers, lawyers, and auditors agree that the likelihood of an unfavorable ruling is remote. This contingent liability:
- A. Need not be disclosed.
- B. Should be disclosed in a note.
- C. Should be disclosed as a parenthetical comment in the balance sheet.
- D. Should be disclosed by an appropriation of retained earnings.
Answer: A
Explanation:
A contingent liability includes a present obligation for which an outflow of resources embodying economic benefits is not probable. A contingent liability is not recognized but is disclosed unless the possibility of the outflow is remote.
NEW QUESTION 19
In a large organization, the biggest risk in not having an adequately staffed information center help desk is:
- A. Increased likelihood of use of unauthorized program code.
- B. Inadequate documentation for application systems.
- C. Increased difficulty in performing application audits.
- D. Persistent errors in user interaction with systems.
Answer: D
Explanation:
The biggest risk in not having an adequately staffed help desk is that users will
unknowingly persist in making errors in their interaction with the information systems.
NEW QUESTION 20
An entity produces a country A and sells some of its output in country B. Selling prices are identical in the two countries. The corporate tax rates are 40% in country A and 20% in country B. Assuming that the entity does not increase or decrease production, it should <List A> sales in country B and set as <List B> a transfer price as possible, in order to minimize global taxes.
- A. Option D
- B. Option B
- C. Option A
- D. Option C
Answer: B
Explanation:
The tax-minimizing strategy is to minimize taxable income where tax rates are high and to maximize taxable income where tax rates are low. Consequently, the entity should sell more in country B but set a low transfer price. This dual strategy minimizes sales and profits in country A, minimizes cost of sales in country B. and maximizes sales and profits in country B.
NEW QUESTION 21
Which of the following is false with respect to client-server networks?
- A. In a client-server network, many applications reside on the client computer.
- B. A client-server network can cope with only 12 or fewer clients at a time.
- C. A client-server network divides processing of an application between a client machine on a network and a server.
- D. The server customarily manages peripheral hardware and control.; a,::,:,,-. .;hared databases.
Answer: B
Explanation:
A client-server network can cope with thousands of clients at a time. They can access the server over the Internet from any where at any time with no time-related charges.
NEW QUESTION 22
A new asset with a fair value of US $100.000 and a useful life of 10 years is being leased by an entity lessee). Which of the situations below will most likely result in classifying the
lease on the lessee's books as a finance lease?
- A. The present value of the minimum lease payments is US $70.000.
- B. The lease term is 8 years.
- C. The present value of the minimum lease payments is US $60.000.
- D. The lease term is 7 years.
Answer: B
Explanation:
A lease may be classified a lessee a finance lease of an operating lease by a lessee. A finance lease transfers substantially all of the risk and rewards of ownership of the asset to the lessee. A lease is classified at its inception. It normally is classified as a financial lease if for example.
1.The lease providers for the transfer of ownership of the asset by the end of the lease term.
2.The lease contains a bargain purchase option: i.e. to be sufficiently below the fair value reasonably certain.
3.The lease term is for the major part of the economic life of the asset.
4.The present value of the minimum lease payment lease is at least substantially all of the fair value of the leased asset at the inception of the lease.
5.The leased assets are such that they can be used only by the lessee without major modification. Thus, a lease term that is 80%8 / 10) of the economic life of the asset will most likely result in classifying the lease as a finance lease assuming that 80% is a "major part" of the economic life of the asset.
NEW QUESTION 23
A plumbing company, a wholesale distributor, supplies plumbing contractors and retailers throughout the Northeast on a next-day delivery basis. The company has a centrally located warehouse to accept receipts of plumbing supplies. The warehouse has a single dock to accept and unload railroad freight cars during the night. It takes 5 hours to unload each freight car. The company's prior records indicate that the number of freight cars that arrive in the course of a night range from zero to five or more, with no indicated pattern of arrivals. If more than two freight cars arrive on the same night, some freight must be held until the next day for unloading. The company wants to estimate the wait time when more than two freight cars arrive in the same night. The appropriate technique to analyze the arrival of freight cars is:
- A. Monte Carlo simulation.
- B. Regression analysis.
- C. Linear programming.
- D. Integer programming.
Answer: A
Explanation:
Monte Carlo simulation is often used in computer modeling to generate the individual values for a random variable. The performance of a quantitative model under uncertainty may be investigated by randomly selecting values for each variable in the model (based on the probability distribution of each variable) and then calculating the value of the solution. If this process is performed many times, the distribution of results from the model will be obtained.
NEW QUESTION 24
Under a defined contribution pension plan<list A> is reported on the balance sheet only if the amount organization has contributed to the pension trust is<list B> the amount required.
- A. Option D
- B. Option B
- C. Option A
- D. Option C
Answer: B
Explanation:
Under a defined contribution plan, the entity reports on the balance sheet only contribution to the pension trust is greater than the defined, required contribution.
NEW QUESTION 25
The use of message encryption software:
- A. Requires manual distribution of keys.
- B. Reduces the need for periodic password changes.
- C. Increases system overhead.
- D. Guarantees the secrecy of data.
Answer: C
Explanation:
Encryption software uses a fixed algorithm to manipulate plain text and an encryption key a set of random data bits used as a starting point for application of the algorithm) to introduce variation. The machine instructions necessary to encrypt and decrypt data constitute system overhead. As a result, processing speed may be slowed.
NEW QUESTION 26
When sales volume is seasonal in nature, certain items in the budget must be coordinated.
The three most significant items to coordinate in budgeting seasonal sales volume are:
- A. Production volume, finished goods inventory, and sales volume.
- B. Raw material inventory, direct labor hours, and manufacturing overhead costs.
- C. Raw material inventory, work-in-process inventory, and production volume.
- D. Direct labor hours, work-in-process inventory, and sales volume.
Answer: A
Explanation:
The most difficult items to coordinate in any budget, particularly for a seasonal business are production volume, finished goods inventory, and sales. Budgets usually begin with sales volume and proceed to production volume, but the reverse is sometimes used when production is more of an issue than generation of sales. Inventory levels are also important because sales cannot occur without inventory and the maintenance of high inventory levels is costly. The Raymar Company is preparing its cash budget for the months of April and May. The firm has established a US $200,000 line of credit with its bank at a 12% annual rate of interest on which borrowings for cash deficits must be made in US$ increments. There is no outstanding balance on the line of credit loan on April 1 Collections. 50% of the current month's sales budget and 50% of the Principal repayments are to be made in any month in which previous month's sales budget there is a surplus of cash. Interest is to be paid monthly. If Accounts Payable Disbursements. 75% of the current month's there are no outstanding balances on the loans. Raymar will invest any cash in excess of its desired end-of-month cash accounts payable budget and 25% of the previous month's accounts payable budget balance in U.S Treasury bills. Raymar intends to maintain a All other disbursements occur in the month in which they are budgeted minimum balance of US $100,000 at the end of each month by either borrowing for deficits below the minimum balance or investing any excess cash. Expected monthly collection and disbursement patterns are shown in the columns to the right.
NEW QUESTION 27
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