Certified Public Accountant Test: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, Regulation: CPA-TEST

Correct Answer: C

Explanation: Choice "c" is correct. The auditor should consider that fraud might occur regardless of any past experience with the entity. An assessment of management's honesty and integrity performed during the previous year would not necessarily be relevant to the current year's audit. Choice "a" is incorrect. An auditor might apply professional skepticism by performing additional audit procedures designed to improve the reliability of evidence. Choice "b" is incorrect. Corroborating management's Explanation: s is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the Explanation: as given. Choice "d" is incorrect. Using third party confirmations to provide support for management's representations is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the explanation: as given.

Correct Answer: C

Explanation:

Choice "c" is correct. Price elasticity of supply is calculated the same way as demand except that quantity supplied is measured:

Perfectly inelastic supply curves are also vertical representing that supply is insensitive to changes in price;

i.e., the quantity supplied will not change as price changes.

Perfectly inelastic supply curves would exist if firms cannot vary input usage. Regardless of price, the firm

has to use all inputs if it produces at all.

Choices "a", "b", and "d" are incorrect, as they are far-out distractors.

Correct Answer: C

Explanation: Choice "c" is correct. Generally, the fair market value of prizes and awards is taxable income. However, an exclusion from income for certain prizes and awards applies where the winner is selected for the award without entering into a contest (i.e., without any action on their part) and then assigns the award directly to

a governmental unit or charitable organization. Therefore, conditions "I" and "II" must be met in order for

Ken to exclude the award from his gross income.

Choice "a" is incorrect. "II" is a necessary condition as well. See explanation above.

Choice "b" is incorrect. "I" is a necessary condition as well. See explanation above.

Choice "d" is incorrect. "I" and "II" are both necessary conditions. See explanation above.