AICPA CPA Financial Accounting and Reporting - FAR Exam Practice Test
According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is:
statements of an entity is:
Correct Answer: D
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Rock Co.'s financial statements had the following balances at December 31:
What amount should Rock report as comprehensive income for the year ended December 31?
What amount should Rock report as comprehensive income for the year ended December 31?
Correct Answer: C
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On December 31, 20X2, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to
discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would
be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts.
Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its
carrying amount in 20X3. Maxy's effective tax rate is 30%.
In its 20X2 income statement, what amount should Maxy report as loss from discontinued operations?
discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would
be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts.
Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its
carrying amount in 20X3. Maxy's effective tax rate is 30%.
In its 20X2 income statement, what amount should Maxy report as loss from discontinued operations?
Correct Answer: A
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According to the FASB conceptual framework, the quality of information that helps users increase the
likelihood of correctly forecasting the outcome of past or present events is called:
likelihood of correctly forecasting the outcome of past or present events is called:
Correct Answer: A
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An extraordinary gain should be reported as a direct increase to which of the following?
Correct Answer: C
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Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the
earliest point at which Envoy should report the small appliance group as a discontinued operation?
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the
earliest point at which Envoy should report the small appliance group as a discontinued operation?
Correct Answer: B
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According to the FASB conceptual framework, the process of reporting an item in the financial statements
of an entity is:
of an entity is:
Correct Answer: D
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On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these
transactions as: a change in accounting principle, a change in accounting estimate, a correction of an
error in previously presented financial statements, or neither an accounting change nor an accounting
error.
During 1993, Quo increased its investment in Worth, Inc. from a 10% interest, purchased in 1992, to 30%,
and acquired a seat on Worth's board of directors. As a result of its increased investment, Quo changed
its method of accounting for investment in Worth, Inc. from the cost method to the equity method.
List A
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these
transactions as: a change in accounting principle, a change in accounting estimate, a correction of an
error in previously presented financial statements, or neither an accounting change nor an accounting
error.
During 1993, Quo increased its investment in Worth, Inc. from a 10% interest, purchased in 1992, to 30%,
and acquired a seat on Worth's board of directors. As a result of its increased investment, Quo changed
its method of accounting for investment in Worth, Inc. from the cost method to the equity method.
List A
Correct Answer: C
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Tanker Oil Co., a development stage enterprise, incurred the following costs during its first year of
operations:
Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as
organizational costs?
operations:
Tanker had no revenue during its first year of operation. What amount may Tanker capitalize as
organizational costs?
Correct Answer: D
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On August 31, 1992, Harvey Co. decided to change from the FIFO periodic inventory system to the
weighted average periodic inventory system. Harvey is on a calendar year basis. The cumulative effect of
the change is determined:
weighted average periodic inventory system. Harvey is on a calendar year basis. The cumulative effect of
the change is determined:
Correct Answer: C
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Earnings per share data should be reported on the income statement for:
Correct Answer: A
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Under FASB Statement of Financial Accounting Concepts #5, which of the following items would cause
earnings to differ from comprehensive income for an enterprise in an industry not having specialized
accounting principles?
earnings to differ from comprehensive income for an enterprise in an industry not having specialized
accounting principles?
Correct Answer: B
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According to the FASB conceptual framework, which of the following situations violates the concept of
reliability?
reliability?
Correct Answer: A
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