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 #2 : Consolidated Financial Statements
A US company is in the process of consolidating a subsidiary operating in China. The two companies have different functional currencies, so the Chinese accounts are being translated into US dollars. Some accounts are translated at historical rates while others are translated at the current rate as of the balance sheet date. Which of the following is true about the subsidiary's accounts?
Inventory and accounts receivable are translated at the current rate
Inventory and accounts receivable are translated at historical rates
Accounts receivable is translated at the current rate and inventory is translated at historical rates
Inventory is translated at the current rate and accounts receivable is translated at historical rates
Inventory and accounts receivable are translated at the current rate
When translating financial statements of companies with different functional currencies, inventory and accounts receivable are translated at the current rate as of the balance sheet date.
Example Question #3 : Consolidated Financial Statements
The Robinson Company produces a balance sheet that shows a large figure in accumulated other comprehensive income within stockholder's equity. Which of the following could not have led to this figure?
Robinson has invested in a bond that was issued at a discount from its face value and is reported as a trading security
Robinson has a defined benefit pension plan where the projected benefit obligation recently increased as a result of a plan amendment
Robinson has a subsidiary in Mexico whose functional currency is Pesos
Robinson has invested in debt securities that are listed as available-for-sale
Robinson has invested in a bond that was issued at a discount from its face value and is reported as a trading security
Investments reported as trading securities do not affect other comprehensive income; all other items are included in other comprehensive income.
Example Question #4 : Consolidated Financial Statements
Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless:
The two companies are in unrelated industries, such as manufacturing and real estate
The subsidiary is a financial company
The fiscal year ends of the two companies are more than three months apart
The subsidiary is in bankruptcy
The subsidiary is in bankruptcy
The exceptions to not consolidating a majority owned subsidiary are when the subsidiary is in legal reorganization or bankruptcy and or the subsidiary operates under severe foreign currency exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary.
Example Question #1 : Consolidated Financial Statements
Of the following is not a characteristic that is used to determine the primary beneficiary of a variable interest entity under US GAAP?
The obligation to absorb expected VIE losses
The right to receive the expected VIE losses
The power to direct the activities of the VIE
Greater than 50% ownership of the VIE
Greater than 50% ownership of the VIE
Under the VIE model, the primary beneficiary is not required to have greater than 50% ownership of the VIE. The primary beneficiary is the entity that has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and absorbs the expected VIE losses and/or receives the expected VIE residual returns.
Example Question #1 : Consolidated Financial Statements
Of the following characteristics, which would be used to determine the primary beneficiary of a variable interest entity under US GAAP?
None of the answer choices are correct
A liability to accept VIE losses
More than a 50% ownership of the VIE
Ability to receive VIE residual returns
More than a 50% ownership of the VIE
The VIE model states that the primary beneficiary is not required to maintain more than a 50% ownership of the VIE, rather the primary beneficiary would be the entity which has the ability to direct the activities of the ViE which most significantly impact the entity's performance and absorb expected VIE losses and receive returns.
Example Question #1 : Government Wide Financial Statements
The library of the city of Howerton has ordered new shelving units at the cost of $40,000. How is this order recorded by the city in the government-wide financial statements?
Financial commitments are not formally reported on the government-wide financial statements
As temporarily restricted net assets in the governmental activities
As an encumbrance in the governmental activities
As an encumbrance in the business-type activities
Financial commitments are not formally reported on the government-wide financial statements
Financial commitments (such as ordering items before receiving them) are recorded in the fund financial statements as encumbrances but they are not recorded in the government-wide statements.
Example Question #2 : Government Wide Financial Statements
Hamilton County purchases a new police car at an estimated cost of $20,000 on August 5, Year 1. The vehicle arrives on September 9, Year 1, with an invoice of $21,250. Hamilton County pays the vendor in full on October 3, Year 1. The journal entry for this transaction would include which of the following on August 5, Year 1?
$21,250 debit to encumbrances
$20,000 debit to encumbrances
$21,250 debit to expenditures
$20,000 debit to expenditures
$20,000 debit to encumbrances
When the purchase is made, a debit will be made to encumbrances for the estimated price at the time of purchase.
Example Question #3 : Government Wide Financial Statements
The city of Abernathy's internal service fund estimates revenues and expenses at the beginning of each year. In Year 2, Abernathy estimates revenues for the year of $2 million and estimates expenses for the year of $1.7 million. What will be the balance in the budgetary control account at the beginning of the year?
$300,000 credit
$2 million credit
$0
$300,000 debit
$0
Internal service funds do not use budgetary accounting; budgetary accounting is used by governmental funds.
Example Question #4 : Government Wide Financial Statements
Which basis of accounting is required for a city's government wide financial statements?
Cash
Modified accrual
Accrual
Modified cash
Accrual
The government wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting.
Example Question #5 : Government Wide Financial Statements
What is the measurement focus and the basis of accounting for the government wide financial statements?
Both
Accrual basis of accounting
Neither
Economic resources measurement focus
Both
The government wide financial statements use both the economic resources focus and accrual accounting.
All CPA Financial Accounting and Reporting (FAR) Resources
