ACCT 555 DeVry Midterm Exam

The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in
our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease
obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained
earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000
and $0.62, respectively, for the past year.
3. (TCO C) The following situation involves a possible violation of the AICPA’s code of professional conduct. For
this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been
violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up
something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his favorite client, Super Pup Dog
Food, because the client would allow him to take home to his dog a variety of dog food samples that amounted to a
year’s worth of dog food.
4. (TCO C) The following situation involves a possible violation of the AICPA’s code of professional conduct. For
this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been
violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up
something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Howard Cunningham & Co., CPAs, designates its firm as Members of the American Institute of Certified Public
Accountants. All of the partners of the firm are CPAs. However, one of the partners has recently chosen to allow her
membership to lapse because of personal reasons.
5. (TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of a public company
has specific guidelines to which employees must adhere. Discuss some of the mandated features of the audit
committee of a public company under SOX.
6. (TCO D) Discuss some of the steps the AICPA and the accounting profession as a whole can and are taking to
reduce practitioners’ exposure to lawsuits. You answer should provide at least five steps.
7. (TCO F) Match nine of the terms (A–K) with the definitions provided below (1–9).
A – Foot
B – Compute
C – Scan
D – Inquire
E – Count
F – Trace
G – Recompute
H – Read
I – Examine
J – Observe
K – Compare
_____ 1: A calculation done by the auditor independent of the client
_____ 2: Addition of a column of numbers to determine if the total is the same as the client’s
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities
_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting
further
investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the audit
8. (TCO G) Discuss the essential activities involved in the initial planning of an audit.