CPA Financial Accounting and Reporting (FAR) : CPA Financial Accounting and Reporting (FAR)
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #4 : Property, Plant And Equipment
Which of the following would be included in the journal entry to retire a fixed asset?
A debit to accumulated depreciation
A credit to accumulated depreciation
A debit to depreciation expense
A credit to sales revenue
A debit to accumulated depreciation
When an asset is retired, the asset value and its related accumulated depreciation are reverse. This means a debit will be booked to accumulated depreciation to clear the account.
Example Question #2 : Asset Retirement Obligations
Which of the following is not a common method of asset disposal?
Scrap
Conversion
Exchange
Sale
Conversion
The most common methods of asset disposal are sale, scrap, and exchange.
Example Question #5 : Property, Plant And Equipment
Of the following assets, which is an intangible that is subject to a recoverability test when testing for impairment?
A patent
R&D costs for a patent
Goodwill
A trademark with indefinite useful life
A patent
The recoverability test is only performed on intangible assets with a limited life. A patent generally has a limited life.
Example Question #3 : Asset Retirement Obligations
Goodwill should be tested for value impairment at which of the following levels under US GAAP?
Each acquisition unit
Entire business as a whole
Each identifiable long term asset
Each reporting unit
Each reporting unit
US GAAP requires that goodwill be tested for impairment at the reporting unit level.
Example Question #12 : Property, Plant And Equipment
Which situation would likely dictate use of units of production depreciation?
Land
Building
Truck
Machine which produces products
Machine which produces products
Land is not depreciated, and a machine which produces products would incur damage, wear and tear, and usage only as it produces goods. Buildings and trucks would be depreciated throughout their lives.
Example Question #1 : Depreciation And Amortization
A company buys 200 doors for $75 each at the beginning of Year 1. On the same day, the company buys an other 300 doors for $85 each. None of the doors are expected to have any salvage value. The cheaper doors have a useful life of 7 years and the more expensive doors have a useful life of 9 years. In Year 2, the company sells one of the cheaper doors for $90 and one of the more expensive doors for $120. All doors were put into a single group for depreciation purposes. How much gain will the company recognize on the sale of the doors in Year 2?
$44.44
$70.44
$0
$25.71
$0
The doors will use the group/composite method of depreciation. Therefore, no gain or loss will be recognized until all items in the group have been sold.
Example Question #2 : Depreciation And Amortization
The Great Dane Bus company buys a new bus on February 14, Year 1. The bus costs $100,000 and has a salvage value of $8,000. The company expects the bus to be used for 200,000 miles and will depreciate it using the units of production method. The bus is driven 35,000 miles during Year 1 and another 40,000 miles during Year 2. What is the book value of the bus at the end of Year 2?
$54,000
$73,600
$65,500
$75,900
$65,500
Since the bus is being depreciated using the units-of-production method, $.46 in depreciation will be recorded for every mile driven ($100K cost - $8K salvage value divided by 200K estimated miles). At the end of Year 2, 75K miles have been driven, for a total of $34,500 in depreciation (75K miles x $.46 per mile). Therefore, the book value of the bus is $65,500 ($100K - $34,500).
Example Question #3 : Depreciation And Amortization
A mining company uses the depletion method to allocate the cost of removing natural resources from its mine. Which of the following statements is correct?
Both of the above
The depletion base equals the cost to purchase the mine minus the mine's estimated residual value
Neither of the above
If the number of units mined equaled the number of units sold, the depletion expense would be equal to the number of units mined
The depletion base equals the cost to purchase the mine minus the mine's estimated residual value
The depletion base will be equal to the cost to purchase the mine minus the mine's estimated residual value.
Example Question #4 : Depreciation And Amortization
Of the following assets, which would be typically reported on a balance sheet as an intangible?
Leasehold improvements
R&D costs
Patent registrations
Derivatives
Patent registrations
Patents are intangible assets and their fees are capitalized.
Example Question #5 : Depreciation And Amortization
A firm should recognize goodwill on the balance sheet at which of the following points?
Costs have been incurred in the development of goodwill
The fair market value of the company's asset exceeds the book value of the company's asset
Goodwill has been created in the purchase of a business
When the firm expects a future benefit from the creation of goodwill
Goodwill has been created in the purchase of a business
Goodwill is recognized in the balance sheet when it has been created from a business acquisition.
All CPA Financial Accounting and Reporting (FAR) Resources
