MCQs

Question 1

Which of the following is necessary to be an audit committee financial expert, according to the criteria specified in the Sarbanes-Oxley Act of 2002?

A.  A limited understanding of generally accepted auditing standards.
B.  Education and experience as a certified financial planner.
C.  Experience with internal accounting controls.
D.  Experience in the preparation of tax returns.

Answer 1

Ans.

C. Experience with internal accounting controls.

SOX, in Section 407, provides that, in defining the term “financial expert” (which the SEC has done in detail), the Commission shall consider whether a person has through education and experience acquired: (1) an understanding of GAAP and financial statements; (2) experience in (a) preparation of financial statements and (b) application of such principles in connection with the accounting for estimates, accruals, and reserves; (3) experience with internal accounting controls; and (4) an understanding of audit committee functions.

Question 2

Financial Expert according to Sarbanes-Oxley

Answer 2

through education and experience acquired:

(1) an understanding of GAAP and financial statements
(2) experience in (a) preparation of financial statements and (b) application of such principles in connection with the accounting for estimates, accruals, and reserves
(3) experience with internal accounting controls
(4) an understanding of audit committee functions.

Question 3

A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of a period, actual sales revenues, total gross profit, and total contribution margin approximated budgeted figures, whereas income was substantially greater than the budgeted amount. There were no beginning or ending inventories.
The most likely explanation of the income increase is that, compared to budget, actual

A.  Manufacturing fixed costs had increased.
B.  Selling and administrative fixed expenses had decreased.
C.  Sales prices and variable costs had increased proportionately.
D.  Sales prices had declined proportionately less than variable costs.

Answer 3

Ans.

B. Selling and administrative fixed expenses had decreased.

Gross profit is the difference between sales and the cost of goods sold. The cost of goods sold includes fixed and variable manufacturing costs assigned to the units sold. Contribution margin equals sales less variable costs. Both the gross profit and the contribution margin are approximately as expected, which implies that sales, variable manufacturing costs, variable selling and administrative expenses, and fixed manufacturing costs are as expected. The only remaining component, fixed selling and administrative expenses, must be responsible for the variation in income.

Question 4

The business cycle in the U.S. is measured in terms of changes in

Answer 4

C. Real GDP

Question 5

Explain the regression equation used for cost prediction

Answer 5

Y = a + bx

Y
a
b
x