Question 1

Sam rents his second home. During the current year, he reported a $40,000 net loss from the rental. Assume Sam actively participates in the rental activity and no phase-out limitations apply. What is the greatest amount of the rental loss that Sam can deduct against ordinary income in the current year?

Options :

A : $25,000

B : $0

C : $40,000

D : $5,000

Answer: A

Question 2

Which of the following would be considered corroborative evidence?

Options :

A : Checks, invoices, and contracts

B : General and subsidiary ledgers

C : Minutes from meetings of the board of directors

D : Worksheets and spreadsheets supporting cost allocations

Answer: C

Question 3

Identify the correct statement regarding analytical procedures used in a review conducted at the conclusion of an audit.

Options :

A : The ultimate purpose of analytical procedures used in a review conducted at the conclusion of the audit is to uncover fraud schemes that may have been missed previously during the audit.

B : Typically, a junior member of the engagement team will perform the analytical procedures applied at the conclusion of the audit because less precision is required.

C : If review analytical procedures suggest the presence of misstated account balances, the auditor may have to perform additional substantive tests of details to satisfactorily complete the audit.

D : Analytical procedures used in the review near the conclusion of the audit are not required.

Answer: C

Question 4

Select all that apply: When applying the revenue test to determine if a segment is a reportable segment, the segment's revenues are compared to the total for the entity. Which of the following revenue items should be included in the revenue calculation?

Options :

A : Sales to unaffiliated customers

B : Interest eamed from loans to other segments

C : Intersegment sales of products

Answer: A

Question 5

Prior to the financial year end of 31 July 20X9, Cannon Co has received a claim of $100,000 from a supplier for providing poor quality goods which have damaged the supplier’s plant and equipment. Cannon Co’s lawyers have stated that there is a 20% chance that Cannon will successfully defend the claim. Which of the following is the correct accounting treatment for the claim in the financial statements for the year ended 31 July 20X9?

Options :

A : Cannon should neither provide for nor disclose the claim

B : Cannon should disclose a contingent liability of $100,000

C : Cannon should provide for the expected cost of the claim of $100,000

D : Cannon should provide for an expected cost of $20,000

Answer: C

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