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IIA CIA Exam
Certified Internal Auditor Exam (Page 55 )

Updated On: 12-Jan-2026
Page 55 of 342
PDF with 1702 Questions

The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit. assuming all other variables remain constant?

  1. Last-in, first-outLIFO).
  2. First-in, first-outFIFO).
  3. Weighted average.
  4. Specific identification.

Answer(s): B

Explanation:

Profit will be higher when cost of goods sold is lower. other factors held constant. Cost of goods sold equals beginning inventory. plus purchases. minus ending inventory_ Accordingly, cost of goods sold will be lowest when the ending inventory is highest. Ending inventory is highest under FIFO because the older, less expensive items are deemed to have been sold, leaving the more expensive items in the ending !inventory.



A retail entity maintains a markup of 25 % based on cost. The entity has the following information for the current year:

Beginning inventory was

  1. US $40, 000
  2. US $85, 000
  3. US $110, 000
  4. US $265, 000

Answer(s): B

Explanation:

Cost of goods sold equals beginning inventory, plus purchasesincluding freight-in), minus ending inventory. Given that sales reflect 125% of cost, cost of goods sold must equal US $720, 000$900.000 sales Consequently the beginning inventory must been US $85, 000$720, 000 CGS $80, 000 E­ $690, 000 purchases ­ $25, 000 freight-in)



An analysis of an entity's US $150, 000 accounts receivable at year-end resulted in a US $5, 000 ending balance for its allowance for uncollectible accounts and a bad debt expense of US $2, 000. During the past year. recoveries on bad debts previously written off were correctly recorded at US $500. If the beginning balance in the allowance for uncollectible accounts was US $4, 700. what was the amount of accounts receivable written off as uncollectible during the year?

  1. US $1, 200
  2. US $1, 800
  3. US $2, 200
  4. US $2, 800

Answer(s): C

Explanation:

Under the allowance method, uncollectible accounts are written off by a debit to the allowance account and a credit to accounts receivable. The US $500 bad debts is accounted for by a debit to accounts receivable and a credit to the allowance account. The US $2, 000 bad debt expense is also credited to the allowance account. The amount of accounts receivable written off as uncollectible is US $2, 200 [$5, 000 ending allowance - $4.700 beginning allowan, .8 + $500 recoveries + $2, 000 bad debt expense)].



An internal auditor is deriving cash flow data based on an incomplete set of facts. Bad debt expense was US $2, 000. Additional data for this period follows:

How much cash was collected this period on credit sales?

  1. US $64, 000
  2. US $68, 000
  3. US $68, 500
  4. US $70, 000

Answer(s): B

Explanation:

The beginning balance of gross accounts receivableA/R) was US $5.000debit). Thus. net beginning A/R was US $4, 500$5, 000 - $660 credit in the allowance for bad debts). The allowance was credited for the US $2, 000 bad debt expense. Accordingly, the ending allowancecredit) was US $1 .500$500 - $1.000 write-off - $2, 000)_ CT...9n a US $30.000 increase net A/R. ending net A/R must have been US $34, 500$4, 500 beginning net A/R T $30, 000), with ending gross , 4/R of US $36, 000$34, 500 + $1, 500). Collections were therefore US $68.000$5, 000 beginning gross A/R - $1.000 write-off T $100, 000



Big Co. holds 18% of the outstanding voting common shares of Little Co. How will Big report unrealized holding gains and losses on these shares?

  1. The treatment varies depending on whether Big classifies the shares as trading securities or available-for¬ sale securities.
  2. As items of other comprehensive income.
  3. As components in the calculation of net income.
  4. As either items of other comprehensive income or components in the calculation of net income, depending on whether the shares have been held longer than one year.

Answer(s): A

Explanation:

Less than 20% ownership is presumed to result in little or no influence over the investee. Such investments are initially recorded at cost and subsequently measured using the fair value method. If the investor classifies the shares as trading securities, unrealized holding gains and losses are included in the calculation of profit or loss. If the investor classifies the shares as available-for-sale securities. unrealized holding gains and losses are treated as items of other comprehensive income.



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