CPA Financial Accounting and Reporting (FAR) : CPA Financial Accounting and Reporting (FAR)
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
All CPA Financial Accounting and Reporting (FAR) Resources
Example Questions
Example Question #11 : Cpa Financial Accounting And Reporting (Far)
Company A reports the following account balances: Cash of $12,000; accounts receivable of $20,000; inventory of $15,000; property, plant, and equipment of $40,000; accumulated depreciation of $24,000; accounts payable of $5,000; accrued expenses of $6,000; short term notes payable of $7,000; long term notes of $10,000, and capital stock of $20,000. What were Company A's total liabilities?
$48,000
$72,000
$52,000
$28,000
$28,000
Liabilities listed include accrued expenses of $6K, accounts payable of $5K, short term notes payable of $7K, and long term notes of $10K, for a total of $28K in liabilities.
Example Question #12 : Cpa Financial Accounting And Reporting (Far)
Of the following, which account would not be included in a balance sheet?
Operating expenses
Note payable
Fixed assets
Cash
Operating expenses
Operating expenses belong on the income statement rather than the balance sheet. Fixed assets and cash are assets on the balance sheet.
Example Question #13 : Cpa Financial Accounting And Reporting (Far)
Camino Corporation reported the following items in Year 3: Foreign currency translation loss: $3,000; distributions to owners: $15,000; net income: $125,000; unamortized prior service cost on pension plan: $12,000; deferred gain on an effective cash flow hedge: $8,000. What amount should Camino report as other comprehensive income (loss) in Year 3?
$20,000
$32,000
$7,000
$35,000
$7,000
Included in other comprehensive income are the $3K foreign currency translation loss, the $12K in prior service cost, and the $8K gain on cash flow hedge.
Example Question #1 : Other Comprehensive Income
Which of the following is incorrect regarding the reporting of comprehensive income?
Comprehensive income includes revenues and expenses that have not been realized in net income
Comprehensive income may be shown on its own financial statement
Comprehensive income can be presented with the income statement as a single financial statement
The terms comprehensive income and other comprehensive income can be used interchangeably
The terms comprehensive income and other comprehensive income can be used interchangeably
Other comprehensive income includes several specific items that have not yet hit net income, while other comprehensive income includes these same items but begins with net income.
Example Question #15 : Cpa Financial Accounting And Reporting (Far)
Which of the following items would not be included in other comprehensive income?
Unrealized holding gains or losses on investments classified as available for sale
Foreign currency translation gains or losses
Unrealized holding gains or losses on investments classified as trading securities
Pension prior service costs or credits
Unrealized holding gains or losses on investments classified as trading securities
Unrealized holding gains/losses are included in net income.
Example Question #1 : Other Comprehensive Income
Peace Corp purchases marketable securities in Love Corp during Year 5. At the end of Year 5, the fair value of Love stock has dropped below its cost. Peace considered the decline in value to be temporary. The security is classified as available-for-sale. What should be the effect on Peace's financial statements at the end of Year 5?
Decrease in available-for-sale securities and decrease in net income
No effect on available-for-sale assets and decrease in net income
Decrease in available-for-sale assets and decrease in other comprehensive income
No effect on net income and decrease on available-for-sale assets
Decrease in available-for-sale assets and decrease in other comprehensive income
Securities that are classified as available-for-sale recognize holding gains/losses in OCI. Therefore, to adjust the securities to market value, the investment asset is decreased and a loss is recognized in OCI.
Example Question #17 : Cpa Financial Accounting And Reporting (Far)
Of the following, which are listed on the Statement of Comprehensive Income?
Net income
Both
Neither
Other Comprehensive Income
Both
Both of these items are listed and broken out on the Statement of Comprehensive Income. Net income are more regular and standard income items where as OCI items are less frequent and do not reflect normal operations.
Example Question #18 : Cpa Financial Accounting And Reporting (Far)
The Washington Company starts the year with $800,000 in assets and $300,000 in liabilities. During the year the company reported net income of $200,000 and paid dividends during the year of $40,000. No other equity transactions took place. What was the company's return on equity for the period?
24.20%
27.60%
34.50%
30.30%
34.50%
Return on equity is calculated by dividing net income by average owner's equity. Beginning owner's equity is the difference between beginning assets and liabilities ($800K - $300K = $500K). Ending owner's equity is beginning equity of $500K + net income of $200K - dividends paid of $40K = $660K. This makes average equity $580K, and return on equity is $200K dividend by $580K.
Example Question #19 : Cpa Financial Accounting And Reporting (Far)
At the end of Year 1, the Walter Company reported net income of $630,000. The company paid cash dividends of $20,000 per quarter on its preferred stock. The company started the year with 80,000 shares of common stock outstanding and 50,000 shares of preferred stock outstanding. On April 1, the company issued an additional 16,000 shares of common stock and 8,000 shares of preferred stock. What should the company report as basic earnings per share?
$5.54
$5.73
$5.98
$6.56
$5.98
Basic EPS is calculated as (net income - preferred dividends)/average common shares outstanding. $80K in preferred dividends were paid during the year ($20K x 4 quarters). Average common shares outstanding were 92K (80K beginning shares x 3/12 months plus 96K shares after the issuance x 9/12 months). Thus EPS is ($630K - $120K)/92K.
Example Question #20 : Cpa Financial Accounting And Reporting (Far)
Working capital is defined as:
Total assets minus current liabilities
Current assets minus current liabilities
Cash plus net receivables plus marketable securities divided by current liabilities
Current assets divided by current liabilities
Current assets minus current liabilities
Working capital represents net short term assets.
All CPA Financial Accounting and Reporting (FAR) Resources
