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CPA Exam Review > BEC > Flashcards

BEC Flashcards

1
Q

What is the primary role of the board of directors?

A

Safeguard the company’s assets and to maximize shareholder return

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2
Q

What are the three categories of objectives within COSO (internal control framework)?

A

Operations Objectives, Reporting Objectives, Compliance Objectives

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3
Q

Effectiveness and efficiency of an entity’s operations=

A

Operations Objectives

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4
Q

Reliability, Timeliness and Transparency=

A

Reporting Objectives

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5
Q

EBOCA (Control Environment)=

A

Ethics and Integrity, Board Independence, Organizational Structure, Commitment to Competence, Accountability

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6
Q

Event ID, Assess Risk, Respond to Risk=

A

Risk Assessment

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7
Q

Communicate and Report Deficiencies, ongoing evaluations=

A

Monitoring

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8
Q

Mitigate Risk, Detect or prevent, segregation of duties=

A

Existing Control Activities

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9
Q

Is a board member or independent auditor independent?

A

Board member

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10
Q

What does the effective system of internal control require?

A

Present (Included in Design and Implementation) and Functioning (Operating as Designed)

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11
Q

ERM includes ORC, plus what?

A

Strategic-High level goals designed to achieve the mission

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12
Q

What are the components of ERM?

A

IS EAR AIM (pg. 19)

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13
Q

risk to an entity in the absence of any actions management might take to alter either the risk’s likelihood or impact=

A

inherent risk

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14
Q

EBOCA + HR=

A

Internal Environment for ERM

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15
Q

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as what?

A

Business judgment rule

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16
Q

Effective information must be what?

A

Fair, Timely, Current, Accurate

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17
Q

Pareto Diagram or Histogram is used for what?

A

Determine the quality control issues that are most frequent and demand the greatest attention

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18
Q

What is the Case and Effect (Fishbone) Diagram used for?

A

Identify sources of problems in the production process by resource and take corrective action

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19
Q

Nonfinancial measures are more easily associated with what?

A

Operational Objectives

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20
Q

What are the three objectives for cost accounting?

A

Product costing, Income Determination, Efficiency Measurements

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21
Q

Manufacturing costs=

A

Product Costs (Direct and Indirect)

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22
Q

Nonmanufacturing costs=

A

Period Costs

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23
Q

Freight IN and Normal Scrap and added to what?

A

Direct raw materials

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24
Q

Prime Costs=

A

DL + DM

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25
Q

Conversion Costs=

A

DL + Manufacturing Overhead

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26
Q

Calculated overhead rate=

A

Budgeted overhead costs/Estimated Cost Driver

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27
Q

Applied overhead=

A

Actual cost driver * Overhead rate

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28
Q

Semi variable cost=

A

Manufacturing Overhead

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29
Q

Cost of goods manufactured=

A

Beg. WIP Inventory + DM+DL+MOH - End WIP Inventory

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30
Q

COGS=

A

Beg. FG Inventory + Cost of goods manufactured (or purchases)- End FG Inventory

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31
Q

Job order costing is applied how?

A

Sequentially

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32
Q

If overhead applied (credit balance) is greater than actual costs:

A

Favorable

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33
Q

Units completed + Ending WP * % Complete=

A

Weighted Average

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34
Q

Beg WIP * % to be completed + Units completed-Beg. WIP +Ending WIP * % Complete=

A

FIFO

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35
Q

Surplus Inventory=

A

Non-value-added activities (Don’t increase product value)

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36
Q

Step down approach=

A

More sophisticated approach

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37
Q

Incurred in producing products up to the split-off point=

A

Joint Product Costs

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38
Q

Incurred on a product after the split-off point=

A

Separable Costs

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39
Q

A causal factor that increases the total cost of a cost objective=

A

Cost driver

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40
Q

Breakeven point in units=

A

Total Fixed Costs/CM per unit

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41
Q

What is the contribution margin calculation?

A

Sales-Variable Cost(Includes shipping)

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42
Q

When production is greater than sales, the income for absorption costing method is ____ than variable costing

A

higher

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43
Q

When sales are greater than production, the income for absorption costing is ____ than variable costing

A

lower

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44
Q

Target cost=

A

Market price-Required Profit

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45
Q

How is absorption Costing different from variable (contribution) costing?

A

Absorption includes fixed manufacturing overhead as product costs

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46
Q

At breakeven, fixed costs equals what?

A

Contribution margin

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47
Q

Total sales-breakeven sales=

A

Margin of safety

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48
Q

What CVP approach is better for external reporting?

A

Absorption costing

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49
Q

Under the variable costing method, fixed selling and administrative expenses are what?

A

Used in computing operating income but not in computing contribution margin

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50
Q

increase in production levels within a relevant range most likely would result in what?

A

Increasing total costs

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51
Q

When is absorption net income greater than variable net income?

A

Increase in inventory

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52
Q

When is variable net income greater than variable net income?

A

Decrease in inventory

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53
Q

For special order decisions with presumed excess capacity, price must be what?

A

Greater than VC/unit

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54
Q

Unavoidable costs and sunk costs (cost of old equipment) are what?

A

Not relevant

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55
Q

Keep a segment if what?

A

Cost to give up (lost CM) > benefit

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56
Q

Are joint costs or separable costs relevant?

A

Separable

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57
Q

R squared=

A

Percentage of variation in the dependent variable explained by the variation in the independent variables

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58
Q

y=Dependent variable=

A

Total cost

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59
Q

x=Independent variable=

A

Units produced

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60
Q

a=y-axis intercept=

A

Fixed cost

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61
Q

B=slope of regression line=

A

VC/unit

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62
Q

What does a regression equation do?

A

Predicts the value of the dependent variable

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63
Q

Direct materials usage budget=

A

BI+Purchases-EI

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64
Q

Cash disbursement budgets eliminate what?

A

Noncash operating expenses

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65
Q

What is the order of budgets?

A

Sales, Production, DM, Cash, Budgeted Income Statement, Budgeted Balance Sheet

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66
Q

What are the critical success factors the balanced scorecard gathers information on?

A

Financial, Internal Business Processes, Customer Satisfaction, Advancement of innovation and HR development

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67
Q

VOH rate (spending) variance=

A

Actual hours * (Actual rate-Standard rate)

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68
Q

VOH efficiency variance=

A

Standard rate * (Actual hours-Standard hours allowed for actual production volume)

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69
Q

FOH budget (spending) variance=

A

Actual fixed overhead-Budgeted fixed overhead

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70
Q

FOH volume variance=

A

Budgeted fixed overhead-Standard fixed overhead cost allocated to production (actual production * standard rate)

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71
Q

DM price variance=

A

Actual quantity purchased * (Actual price-standard price)

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72
Q

DM usage (efficiency) variance=

A

Standard price * (Actual quantity used-standard quantity allowed)

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73
Q

DL rate variance=

A

Actual hours worked * (Actual rate - Standard rate)

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74
Q

DL efficiency variance=

A

Standard rate * (Actual hours worked - Standard hours allowed)

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75
Q

Price variance=

A

(Standard price-actual price) * Actual units

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76
Q

Profit/Costs=

A

Sales

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77
Q

Increase in production levels within the relevant range would cause variable costs to increase. While fixed costs would remain constant, what else would increase?

A

Total cost

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78
Q

Ending inventory=

A

Unites produced-Units sold

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79
Q

Capital intensive industries=

A

High operating leverage

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80
Q

Labor intensive industries=

A

Low operating leverage

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81
Q

What are the three methods of computing the cost of RE?

A

Capital asset pricing model, Discounted cash flow, bond yield plus risk premium

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82
Q

Cost of retained earnings formula (CAPM)=

A

Risk-free rate + (Beta * (Market return-risk free rate))

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83
Q

The higher the financial leverage (Average total assets/Equity), the higher the what?

A

Risk

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84
Q

Abandoned asset’s book value is considered a ____ cost, and not relevant

A

sunk

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85
Q

____ allows interest rate to change, IRR (discounted cash flows) doesn’t

A

NPV

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86
Q

If IRR > discount rate, what is the result?

A

Profit

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87
Q

Profitability Index=

A

PVFCF / PV of Net initial investment

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88
Q

______ _____ focuses decision makers on both liquidity and risk

A

payback period

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89
Q

If the payback period is low, the ____ is low

A

risk

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90
Q

Time value of money is ignored for what method?

A

Payback period method

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91
Q

High operating leverage (more fixed costs)=

A

Greater risk but greater returns

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92
Q

Capital budgeting is based on what?

A

Predictions of an uncertain future

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93
Q

Cost of debt=

A

Effective interest rate * (1-tax rate)

94
Q

Discounted cash flow method for cost of common equity=

A

Dividend next period/Stock price +% Growth Rate

95
Q

Cost of capital=

A

Rate of return on assets that covers the costs associated with the funds employed

96
Q

ROI=

A

Income/Investment Capital(Average Assets Includes Working Capital and PP&E)

97
Q

ROA=

A

Net Income/Average Total Assets(Debt+Equity)

98
Q

Financial Leverage=

A

Average total assets/Equity

99
Q

Excess of actual income earned by an investment over the return required by the company=

A

Residual Income

100
Q

If the debt to assets ratio is low, the risk is what?

A

Low

101
Q

If the debt to total capital ratio is high, the risk is what?

A

High

102
Q

After tax income/(1-tax rate)=

A

Pretax income

103
Q

EBIT=

A

Pretax income+Interest

104
Q

Lockbox=

A

Minimized collection float

105
Q

If the working capital is low, the risk is what?

A

High

106
Q

If the working capital is high, the risk is what?

A

Low

107
Q

Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period=

A

Cash Conversion cycle (should be shorter)

108
Q

What is the objective of EOQ?

A

Minimize total inventory costs (ordering and carrying costs)

109
Q

What does EOQ assume?

A

Demand is known and is constant throughout the year

110
Q

ESOC=

A

Order Size= Square Root of (2Annual SalesOrder Cost)/Carrying Cost per unit

111
Q

Marketable Securities: Least Risky= , Most Risky=

A

Treasury Bills/ CDs, Equity Securities of Public Companies (Stocks)

112
Q

Financial leverage increases when what?

A

Debt to Equity Ratio increases

113
Q

What are the steps in the SDLC?

A

A DITTO (Systems Analysis, Design both Conceptual and Physical, Implementation and Conversion, Training, Testing, Operations and Maintenance

114
Q

What are the four primary roles in business operations?

A

To process detailed data, provide information for making daily decisions, provide information for developing business strategies, to take orders from customers

115
Q

Master files only updated periodically (daily)=

A

Batch processing

116
Q

What are the advantages of centralized processing?

A

Enhanced data security, consistent processing

117
Q

What are the disadvantages of decentralized processing?

A

Possible high cost, delay in response time, bottlenecks, increased vulnerability, reduction in local accountability

118
Q

Demand report=

A

Pull, user tells system

119
Q

Provides users predefined reports that support effective business decisions (more board)=

A

Management Information Systems

120
Q

What are the seven criteria for COBIT?

A

Integrity, Confidentiality, Efficiency, Reliability, Availability, Compliance, Effectiveness (ICE RACE)

121
Q

Optimization of knowledge and infrastructure=

A

Resource Management

122
Q

What are the four domains of the COBIT?

A

Plan and Organize, Acquire and Implement (solution), Deliver and Support (service), Monitor and Evaluate (PO AIDS ME)

123
Q

Who is responsible for scheduling and running processing jobs?

A

Computer Operator

124
Q

Who is responsible for the definition, planning, and control of the data within a database?

A

Data Administrator

125
Q

When the system can be shut down for backup and maintenance, files or databases that have changed since the last backup can be what?

A

Backed up

126
Q

When the system cannot be shut down, recovery includes what?

A

applying a transaction log and reapplying the transactions to get back tot he point before the failure

127
Q

System and processes used to issue and manage asymmetric keys and digital certificates?

A

Public key infrastructure

128
Q

Mission statement for the IT security program=

A

Program-Level Policy

129
Q

Electronic completion of exchange (buying and selling) transactions=

A

E-Commerce

130
Q

Any use of information, particularly networking and communications technology, to perform business processes in electronic form=

A

E-Business

131
Q

Process of determining the correspondence between data elements in an organization’s terminology and data elements in standard EDI terminology=

A

Mapping

132
Q

EDI driven by VAN=

A

More expensive, more secure and slower

133
Q

E-Commerce driven by Internet=

A

Less expensive, less secure and faster

134
Q

What is the greatest risk of an organizations use of EDI?

A

Unauthorized access to the organization’s systems

135
Q

What are the challenges faced in business process reeingineering?

A

Tradition, resistance, time and cost requirements, lack of management support, skepticism, retraining, controls

136
Q

Analysis and redesign of business processes and information systems to achieve significant performance improvements=

A

Business Process Reengineering

137
Q

B2B transactions=

A

More complex products, faster transactions, safer, no opportunity for human errors

138
Q

Supply Chain Management Functions=

A

Planning, Sourcing, Making, Delivery

139
Q

Application Service Providers=

A

Provide access to application programs on a rental basis, provide more flexibility and lower costs, risk to security and possible poor support

140
Q

Communications (Transfer) Protocol used to transfer web pages on the world wide web=

A

HTTP

141
Q

Risk of choosing inappropriate technology=

A

Strategic risk

142
Q

Risk of doing the right things in the wrong way=

A

Operating risk

143
Q

Risk of loss of data integrity, incomplete transactions, or hackers=

A

Information risk

144
Q

One computer or group of computers bombards another computer with a flood of network traffic=

A

Denial-of-Service Attack

145
Q

Can run independently and cannot attach itself to other programs=

A

Worm

146
Q

What are the steps in a disaster recovery plan?

A

Assess risks, identify mission-critical applications and data, develop a plan, determine the responsibilities of the personnel involved, test the disaster recovery plan

147
Q

Involves copying only the data items that have changed since the last backup (shortest)=

A

Incremental backup

148
Q

copies all changes made since the last full backup (middle)=

A

Differential backup

149
Q

Exact copy of the entire database (longest)=

A

Full backup

150
Q

What is a disadvantage of batch processing?

A

Stored data are current only after the update process

151
Q

What are the components of a Business Information System?

A

Hardware, Software, Data, People, Network

152
Q

a manual total will be calculated for each transaction file and compared to a computer-generated batch control total=

A

batch processing

153
Q

Symmetric encryption=

A

both parties use the same private key to encrypt and decrypt the message so that the key must be shared

154
Q

Preventive control=

A

Access control software

155
Q

What are the five focus areas for IT governance for COBIT?

A

strategic alignment, value delivery, resource management, risk management, performance measurement

156
Q

What is the simplest type of firewall configuration?

A

Packet filtering

157
Q

What happens in an expansionary phase?

A

GDP, Profits and Prices Rise, Unemployment Falls

158
Q

Increase in oil prices or nominal wages (AS decreases)=

A

Cost-Push Inflation

159
Q

Inflation has an ____ relationship with purchasing power

A

Inverse

160
Q

Money used for purchases of goods and services=

A

M1

161
Q

Unused productive capacity and an unwillingness to risk investments are characteristics of what?

A

Trough of a business cycle

162
Q

A significant decline in the exchange rate of the U.S. dollar generally will have what affect?

A

benefit U.S. exporters

163
Q

Is nominal GDP or real GDP adjusted for inflation?

A

Real GDP

164
Q

When real GDP is below the potential level of output=

A

Recession

165
Q

Appreciated currencies (goods will become more expensive for foreigners, while foreign goods will become less expensive for residents)=

A

AD goes down, GDP goes down, unemployment goes up, price goes down

166
Q

Depreciated currencies (goods will become less expensive for foreigners, while foreign goods will become more expensive for residents)=

A

AD goes up, GDP goes up, unemployment goes down, prices goes up

167
Q

What are the factors that shift aggregate demand?

A

Taxes, Wealth, Interest Rates, Consumer Confidence, Exchange Rates, Government Spending

168
Q

Under the expenditure approach, GDP is the sum of what components?

A

Government, Investment (Business), Personal Consumption (Households), Net Exports (Exports minus Imports)

169
Q

Under the income approach, GDP is the sum of what components?

A

Income of proprietors, Profits of corporations, Interest, Rental Income, Adjustments for net foreign income, Taxes, Employee compensation, Depreciation (Capital consumption allowed)

170
Q

What is cyclical unemployment caused by?

A

Decreases in AD or SRAS

171
Q

What is the measure of the overall cost of a fixed basket of goods and services purchased by an average household?

A

Consumer Price Index

172
Q

What type of inflation is caused by increases in aggregate demand?

A

Demand-Pull inflation

173
Q

As the price level rises, the value of what declines?

A

Money (Purchasing power)

174
Q

M1+CDs less than $100,000, money market accounts, mutual fund accounts savings accounts=

A

M2

175
Q

M2+CDs of more than $100,000=

A

M3

176
Q

An increase in money supply will cause interest rates to what?

A

Fall

177
Q

What are the factors that shift the demand curve

A

Changes in Wealth, Prices of Related Goods, Consumer Income, Consumer Tastes or Preferences for a Product, Changes in Consumer Expectations, Changes in Number of Buyers served by the market

178
Q

Frictional unemployment refers to unemployment resulting from what?

A

The time needed to match qualified job seekers with available jobs

179
Q

What would lead to a reduction in inflation?

A

Decreasing aggregate demand and increasing aggregate supply

180
Q

Nominal Interest Rate-Inflation=

A

Real Interest Rate

181
Q

What are the factors that shift the supply curve?

A

Changes in Price Expectations of the supplying firm, changes in production costs, changes in the price or demand for other goods, changes in subsidies or taxes, changes in production technology

182
Q

If the price is set below the equilibrium price, the quantity demanded will exceed what?

A

Quantity supplied (Price ceiling)

183
Q

If the price is set above the equilibrium price, the quantity demanded will be ____ than quantity supplied

A

Less (Price floor)

184
Q

If the price elasticity of demand is less than 1, it is what?

A

Inelastic (greater than 1 is elastic)

185
Q

If price is inelastic, total revenue what?

A

Rises (Positive Relationship)

186
Q

Change in total cost associated with a change in output quantity over a period=

A

Marginal Cost

187
Q

Few sellers dominate the sales of a product and entry of new sellers is difficult or impossible, strongly interdependent firms=

A

Oligopoly (kinked demand curve)

188
Q

Many sellers compete to sell a differentiated product in a market into which the entry of new sellers is possible, highly elastic=

A

Monopolistic Competition

189
Q

Minimum wage set above the equilibrium wage results in what?

A

Decrease in quantity demanded of labor, increase in quantity supplied of labor, decrease in total employment

190
Q

If demand increases and supply decreases, equilibrium price will what?

A

Increase

191
Q

What pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry?

A

Collusive Pricing

192
Q

If product demand increases and product supply decreases, price will ____ and quantity will _____

A

Increase, Uncertain

193
Q

What are the 5 factors that affect the competitive environment of the firm (Porters 5 Forces)?

A

Barriers to market entry, market competitiveness, existence of substitute products, bargaining power of the customers, bargaining power of the suppliers

194
Q

What are the two ways cost leadership can be an advantage?

A

Build market share (lower the prices of it’s product), match the prices of rivals

195
Q

strategic tool that assists a firm in determining how important its value is with respect to the market in which the firm operates=

A

value chain analysis

196
Q

What does purchasing federal securities do?

A

Increases the money supply and expands the economy

197
Q

% Change in quantity demanded / % Change in price=

A

Price elasticity of demand

198
Q

(New supply-Old supply)/Old supply=

A

% Change in quantity

199
Q

When output increases by less than the proportional change in inputs, the firm is exhibiting what?

A

Decreasing returns to scale

200
Q

If domestic currency appreciates, new outflows (exports) ______ and net inflows (imports) ________

A

depreciates, increases

201
Q

If domestic currency depreciates, new outflows (exports) ______ and net inflows (imports) ________

A

increase, depreciates

202
Q

Stated coupon rate>market interest rate=

A

Premium

203
Q

Approach that seeks to coordinate the functions of an organization toward an ultimate goal of continuous improvement in customer satisfaction=

A

Business Process Management

204
Q

What are some examples of prevention costs (conformance)?

A

Employee training, inspection, equipment maintenance, redesign, search for higher quality suppliers

205
Q

What are some examples of appraisal costs (conformance)?

A

Quality checks, testing, inspection, maintenance of laboratory

206
Q

What are some examples of internal failure costs (nonconformance)?

A

Rework costs, scrap, tooling changes, costs to dispose, cost of the lost unit, downtime

207
Q

What are some examples of external failure costs (nonconformance)?

A

Warranty costs, cost of returning the good, liability claims, lost customers, reeingineering an external failure

208
Q

If conformance costs increase and nonconformance costs decrease by more, the program is what?

A

A success

209
Q

No quality focus=

A

Lean manufacturing

210
Q

What is the responsibility of the project manager?

A

Project administration on a day-to-day basis including identifying and managing internal and external stakeholder expectations

211
Q

What are the five processes in project management?

A

Initiating, Planning, Executing, Monitoring and Controlling, Closing

212
Q

Cooperation amongst nations to control emissions and participation of nations in worldwide institutions (WTO, UN) is a demonstration of what?

A

Functional Interdependence

213
Q

With globalization and opening markets to foreign investments, what will happen?

A

Decrease in cost of capital and increase in investment growth rates, reduced volatility

214
Q

political risk, economic risk, transfer risk, sovereign risk, and exchange rate risk associated with engaging in business with foreign countries=

A

Country risk

215
Q

Weak local currency reduces demand for what?

A

Imported goods

216
Q

What does global sourcing anticipates?

A

Multiples sources for materials and multiple exchange rates

217
Q

Increase in level of risk results in an increase in management’s required rate of return=

A

Risk-Averse Behavior

218
Q

Increase in level of risk results in a decrease in management’s required rate of return=

A

Risk-Seeking Behavior

219
Q

Risk that is nonmarket, unsystematic, nonmarket or firm-specific=

A

Diversifiable Risk

220
Q

Risk that is market or systematic (impacts everyone),can’t be eliminated through a portfolio=

A

Nondiversifiable Risk

221
Q

As inflation associated with a foreign economy increases in relation to a domestic economy, demand for the foreign currency ____

A

falls

222
Q

What are the risk premiums added to calculate the required rate of return?

A

Maturity Risk Premium, Purchasing Power Risk or Inflation Premium, Liquidity Risk Premium, Default Risk Premium

223
Q

Sell a foreign currency at a higher rate at fixed conditions of price and time=

A

Put option (option to buy=call option)

224
Q

Dividend/discount rate(return-growth rate)=

A

Price

225
Q

What are the advantages of short term financing (opposite for long-term)?

A

Increased liquidity, increased profitability, decreased financing cost

226
Q

What are the disadvantages of short term financing (opposite for long-term)?

A

Increased Interest Rate Risk, Decreased capital availability

227
Q

What are the characteristics of debentures and bonds?

A

Fixed cost+maturity date, decreased credit worthiness, no new owners-EPS goes up, increased financial risk, tax deductibility

228
Q

What are the characteristics of equity?

A

Variable cost, improved credit worthiness, increase in new owners-EPS goes down, more flexibility

229
Q

Uses domestic currency to purchase a foreign currency at current spot rates and invest them in securities timed to mature at the same time as related payables=

A

Money market hedge

230
Q

Hash total and Echo Check=

A

Detective Control

231
Q

_______ does not require any payment, it does not mature and, because it increases equity while having no effect on debt, it decreases the debt equity ratio and increases the credit-worthiness of the firm.

A

Common stock

CPA Exam Review (4 decks)

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