section 7

Question 1

What are internal controls?

Answer 1

policies and procedures implemented by a business that are designed to safeguard assets and ensure accurate accounting records

Question 2

What are some of the key internal controls associated with safeguarding a business’ cash?

Answer 2

1. separation of duties
2. proper authorization for transactions
3. adequate documentation and records
4. independent checks on performance

Question 3

T/F operating income or loss is equal to net sales revenues less COGS and operating expenses

Answer 3

true

Question 4

T/F Employer payroll tax expense is equal to the amount of tax withholdings from employees’ payroll checks plus any additional employer payroll taxes

Answer 4

false

Question 5

t/f state sales taxes collected from customers should be accounted for as revenue

Answer 5

false

Question 6

internal controls are policies and procedures designed to

Answer 6

safeguard a company’s assets
and
ensure the accuracy of its accounting records

Question 7

the implementation of internal controls for a business is the responsibility of

Answer 7

the company’s management

Question 8

t/f in anticipation of cuts in tax rates under the new Bush administration, many taxpayers tried to defer taxable income from the year 2000 to the year 2001 to lower their tax obligations to the federal government

Answer 8

true

Question 9

t/f a tax loophole is an illegal attempt to evade taxes

Answer 9

false

Question 10

t/f corporate taxes are ultimately born by either consumers through higher product prices, or shareholders through lower investment earnings

Answer 10

true

Question 11

T/F a traditional IRA is a personal retirement account to which an individual makes contributions that may be tax-deductible and any earnings on those contributed funds grow tax-free until withdrawn

Answer 11

true

Question 12

t/f Certified Fraud Examiners are agents of the federal government charged with the responsibility of detecting fraud in publicly held companies filing with the SEC

Answer 12

false

Question 13

t/f according to the Association of Certified Fraud Examiners, well educated, older men in executive-ownership positions are the most significant perpetrators of business fraud in terms of actual dollars lost

Answer 13

true

Question 14

t/f if a CPA performing a financial statement audit discovers a fraud perpetrated by senior management, they are required by law to inform federal law enforcement authorities

Answer 14

false

Question 15

The fraud triangle is comprised of

Answer 15

1. perceived pressure (money)
2. perceived opportunity
3. rationalization (explanations to justify fraudulent behavior)

Question 16

The primary forms of fraud in business are

Answer 16

corruption
misappropriation of assets
financial statement fraud

Question 17

4 Key internal controls in safeguarding cash

Answer 17

1. separation of duties
2. authorization procedures
3. documentation and records
4. independent checks on performance (bank reconciliation)

Question 18

3 basic tax planning strategies legally available to taxpayers

Answer 18

shift income (or deductions) from one time period to another
shifting income from one pocket to another
relocation to Bermuda
family business
character change of income
capital gains
ordinary income

Question 19

t/f payment of a tax deductible expense can actually produce a net cash increase to the taxpayer on an after tax basis

Answer 19

false, there is no way for a payment of a deductible expense to result in a net positive cash flow

Question 20

t/f in order for a CPA to legitimately recommend an aggressive tax reporting position to a taxpayer, the position must have 100% certainty of success if brought before a court

Answer 20

false, for a tax professional to legitimately recommend an aggressive reporting position (ie taxable income reducing) to a taxpayer, the position must have a “realistic possibility “ or 1 in 3 chance of success in court.

Question 21

Net Sales Revenues =

Answer 21

Sales Revenues — Sales Discounts and Sales Returns & Allowances

Question 22

Gross Margin =

Answer 22

Net Sales Revenues — COGS

Question 23

Operating Income =

Answer 23

Gross Margin — Operating Expenses

Question 24

the cost of employee salaries and wages is what kind of expense?

Answer 24

operating expense

Question 25

what are the 2 kinds of payroll taxes?

Answer 25

employee payroll tax withholding
employer’s payroll taxes

Question 26

journal entries for payroll taxes include debits to

Answer 26

wage expense & payroll tax expense

Question 27

What is operating income (loss)?

Answer 27

net sales revenues — (COGS + operating expenses)