Correct Answer: B

Explanation:

Choice "b" is correct. II only. If Pell is unable to review Smith's audit documentation, but inquiries indicate

that Smith has an excellent reputation for professional competence and integrity, Pell should divide

responsibility by making reference to Smith's audit.

Choices "a", "c", and "d" are incorrect. Since the principal auditor in situation I reviews Smith's audit

documentation and assumes responsibility for Smith's work, no mention of Smith should be made.

Correct Answer: C

Explanation:

Choice "c" is correct. Accounting estimates are not used to measure future events. (Although, the

measurement of some accounts may be uncertain pending the outcome of future events.)

Choice "a" is incorrect. Valuation of certain historical accounts is uncertain, and may be dependent upon

the outcome of future events. Accounting estimates are used in such situations to more properly reflect the

account balance.

Choices "b" and "d" are incorrect. If data about past events cannot be accumulated in a timely, cost-

effective manner, accounting estimates may be required.

Correct Answer: C

Explanation:

Choice "c" is correct. When a judgment is obtained against both a partnership and an individual general partner, the plaintiff must proceed against the partnership assets first and then the assets of any individual general partner. The partnership assets must be exhausted before any general partner's individual assets can be attached. Choices "a", "b", and "d" are incorrect, per the above rule.

Correct Answer: C

Explanation:

Choice "c" is correct, as it is not a factor that would cause market competitiveness to be even stronger.

Choices "a", "b", and "d" are incorrect because they are all reasons that competition becomes an even

stronger force that impacts the firm's profitability. The following are situations that would cause competition

to be an even stronger force impacting the profitability of a firm:

•

The market is not growing fast.

•

There are several equal-sized firms in the market.

•

Customers do not have strong brand preferences.

•

The costs of exiting the market exceed the costs of continuing to operate.

•

Some firms profit from making certain moves to increase market share.

•

The various firms in the market use different types of strategic plans.

Correct Answer: C

Explanation:

Choice "c" is correct. Eugene Entrepreneur has mapped out a harvest mission for his company. As Gene

retires and pulls assets and value from the company, he is clearly taking a short-term view toward reaping

immediate benefit.

Choice "a" is incorrect. A "build" mission anticipates that the business is positioned to expand markets or

market share and is characterized by a long-term view that promotes investment.

Choice "b" is incorrect. A "hold" mission contemplates that the business is trying to hold on to current

market share and is characterized by appropriate investment and competitive positioning.

Choice "d" is incorrect. The term "sunset" mission is a distracter.

Correct Answer: A

Explanation: Choice "a" is correct. A capital investment whose rate of return exceeds the rate of return associated with the firm's beta factor will increase the value of the firm. Choice "b" is incorrect. A capital investment whose rate of return is less than the rate of return associated with the firm's beta factor will decrease the value of the firm. Choice "c" is incorrect. The return on a capital investment in relation to the prime rate of return will not necessarily indicate if the investment increases or decreases the value of the company without knowing the relative risk of the firm in relation to the market and its relationship to the prime rate. Choice "d" is incorrect. The return on a capital investment in relation to the prime rate of return will not necessarily indicate if the investment increases or decreases the value of the company without knowing the relative risk of the firm in relation to the market and its relationship to the prime rate.

Correct Answer: D

Explanation:

Choice "d" is correct. 17.5% annual cost of financing.

Correct Answer: B

Explanation:

Choice "b" is correct. Yes - Yes.

Both the "extraordinary items" and "income before extraordinary items" should be shown with an earnings

per share number on the income statement.

Correct Answer: C

Explanation: Choice "c" is correct. Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Earned compensation is subject to self-employment tax. Payments not guaranteed are merely another way to distribute partnership profits. The ordinary income reported from an S corporation are taxable income to the individual or their own individual tax return but is not subject to self-employment tax. The ordinary income reported from a partnership may be subject to self-employment tax (if to a general partner).

Correct Answer: D

Explanation:

RULE: Gross income includes all income unless it is specifically excluded in the tax code.

Choice "d" is correct. Wages and all unemployment compensation are not excluded from being taxable;

therefore, there are included in the taxpayer's gross income for tax purposes.

Choice "a" is incorrect. All forms of unemployment compensation are included as part of gross income.

Choice "b" is incorrect. The $4,000 of state unemployment compensation received is included as part of

gross income.

Choice "c" is incorrect. The $2,000 of his former employer's company-paid supplemental unemployment

benefit plan is included as part of gross income.