MCQs

Question 1

Macro-environmental analysis is concerned with analysis of
	A.  economic market structure.
	B.  an industry.
	C.  the characteristics of 
	D.  A firm.

Answer 1

C. the characteristics of a country or region.

Macro-environmental analysis is concerned with analysis of the characteristics of a country or a region. Specifically, macro-environmental analysis considers the broad political, economic, social, and technological characteristics of a country or a region.

Question 2

Which of the following statements is true regarding small business computing?

A.  General IT controls are less important in a small business computing environment.
B.  Spreadsheets should be reviewed and tested by an independent third party.

C.  The centralized IT department should be the primary source of control.
D.  All of the above.

Answer 2

B. Spreadsheets should be reviewed and tested by an independent third party.
This ensures that they operate as expected.

Question 3

Which one of the following bond issues, with different terms and stated rates of interest, would have the highest interest rate risk, all other things being equal?

A.  10-year, 4% bonds.
B.  10-year, 6% bonds.
C.  30-year, 4% bonds.
D.  20-year, 4% bonds.

Answer 3

C. 30-year, 4% bonds.

This issue has the longest maturity (with the lowest stated interest rate). Therefore, it will have the highest interest rate risk.

Question 4

In a large multinational organization, which of the following job responsibilities should be assigned to the network administrator?

A.  Managing remote access.
B.  Developing application programs.
C.  Reviewing security policy.
D.  Installing operating system upgrades.

Answer 4

A. Managing remote access.

Managing remote access is an appropriate responsibility for a network administrator.

Question 5

Which of the following is not true of a computerized environment as compared to a manual environment?

A.  Computerized processing frequently combines functions that are normally separated in a manual environment.
B.  The potential for clerical errors is substantially reduced in a computerized environment.
C.  The audit procedures may be integrated into the programs.
D.  The potential for systemic errors is substantially reduced in a computerized environment.

Answer 5

D. The potential for systemic errors is substantially reduced in a computerized environment.
The potential for systemic errors is increased in a computerized environment.

Question 6

Quoted prices in which of the following types of markets could be level 2 inputs in determining fair value under the U.S. GAAP hierarchy of inputs for fair value determination?

Active Markets Y/N
Inactive Markets Y/N

Answer 6

Active Markets Y
Inactive Markets Y

Level 2 inputs in the U.S. GAAP hierarchy of inputs for fair value determination include quoted prices in active markets for similar (but not identical) assets or liabilities as well as quoted prices for identical or similar assets or liabilities in inactive markets.

Question 7

In the short run, a firm in perfect competition will cease to produce when which of the following conditions exists?

A.  Price is less than average variable cost.
B.  Price is less than average total cost, but greater than average variable cost.
C.  Marginal revenue is less than average total cost, but greater than average variable cost.
D.  Marginal revenue is greater than average total cost.

Answer 7

A. Price is less than average variable cost.

When the market price is less than a firm’s average variable cost, the firm should cease to produce and exit the market. At this price-to-cost relationship, each unit the firm produces does not cover the variable cost to produce the product and total losses increase with every unit produced.

Question 8

Which of the following methods should be used if capital rationing needs to be considered when comparing capital projects?
	A.  Net present value.
	B.  Internal rate of return.
	C.  Return on investment.
	D.  Profitability index.

Answer 8

D. Profitability index.
The profitability index (PI) method of capital project evaluation should be the method used in comparing capital projects when capital rationing needs to be considered. The profitability index method (also called the cost/benefit ratio) is primarily intended for use in ranking projects. It does so by taking into account both the present value and the cost of each project.

Question 9

Checkpoint auto leasing is a small company with six employees. The best action that it can take to increase its internal control effectiveness is
A. Hire temporary employees to aid in the segregation of duties.
B. Hire a bookkeeper to perform monthly “write up” work.
C. Clearly delegate responsibilities to each employee for the functions that they are assigned.
D. Engage the owner in direct participation in the activities, including financial record-keeping, of the business.

Answer 9

D. Engage the owner in direct participation in the activities, including financial record-keeping, of the business.
This is the best answer since engaging the owner in the activities of the business is an important compensating control in small organizations.

Question 10

Will the capitalization of a lease by the lessee increase or decrease the debt to equity and asset turnover ratios?

Debt to Equity Ratio: Increase/Decrease

Asset Turnover Ratio: Increase/Decrease

Answer 10

Debt to Equity Ratio: Increase

Asset Turnover Ratio: Decrease

Capitalization of a lease by a lessee results in the lessee recording an asset and a liability. The increase in a liability (debt), without a change in equity, will increase the debt to equity ratio. The results can be seen in the following example:
Debt = $200 = 2:1 + Lease $50 = $250 = 2.5:1
Equity $100 $100
A change from 2:1 to 2.5:1 is an increase in the debt to equity ratio. Since capitalization of a lease increases the assets of an entity, the asset turnover ratio will decrease. The results can be seen in the following example:

Net Sales = $600 = 3 times+ Lease $50 = $600 = 2.4 times
Assets $200 $250
A change from 3 times to 2.4 times is a decrease in the turnover ratio.

Question 11

In COBIT, the process of identifying automated solutions falls within the \_\_\_\_\_\_\_\_ control process domain.
	A.  Acquire and implement.
	B.  Deliver and support.
	C.  Monitor and evaluate.
	D.  Plan and organize.

Answer 11

A. Acquire and implement.

The process of identifying automated solutions does fall within the acquire and implement control process domain.