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 #1 : Calculate Fluctuations & Ratios
Of the following, which are elements of comprehensive income?
Deferred revenues
Investments by owners
Capital distributions to owners
Annual sales revenues
Annual sales revenues
Sales revenue is a part of comprehensive income, deferred revenue is a liability, distributions to owners are changes in equity, as well as investments by owners.
Example Question #1 : Income Statement
The metal division of a company generates an operating profit of $10,000 per month. On the final day of year 1, the company officials decide to sell the division which has a book value of $540,000. These officials believe they can sell the division for $570,000 but only after spending $70,000 needed to make the sale. The metal division meets the qualifications to be classified as an asset held for sale. In addition, the division qualifies as a discontinued operation. It is sold for the anticipated amount in February of year 2. Ignoring income taxes, what does the company report at the bottom of its year 1 income statement for the discontinued operation?
$50,000 profit
$80,000 profit
$0
$120,000 profit
$80,000 profit
The metal division generation $120K in operating profits throughout the year ($10K per month x 12 months). As part of the sale of the metal division, the company anticipates a loss of $40K ($570K sale price - $540K book value - $70K necessary expenses). Combined this creates a profit of $80K for the entire year.
Example Question #2 : Income Statement
Barr Company had the following account balances at the end of Year 1: sales of $250,000; cost of goods sold of $90,000; salaries and wages of $30,000; rent expense of $15,000; advertising costs of $25,000; fixed assets purchased $50,000. What was Barr's net income for Year 1?
$115,000
$90,000
$160,000
$65,000
$90,000
Net income is calculated by taking sales of $250K - COGS of $90K - salaries of $30K - rent of $15K - advertising of $25K.
Example Question #3 : Income Statement
Colt, Inc had the following account balances at the end of Year 3: consulting revenue of $60,000; rent expense of $15,000; software licensing fees of $5,000; dividends paid of $12,000; and advertising expenses of $25,000. What was Colt's net income in Year ?
$20,000
$15,000
$3,000
$8,000
$15,000
Net income is calculated by taking revenue of $60K - rent of $15K - licensing fees of $5K - advertising of $25K.
Example Question #4 : Income Statement
Which of the following items would not be included in operating income?
Repair and maintenance expense
Gain on available-for-sale securities
Sales revenue
Cost of goods sold
Gain on available-for-sale securities
Operating income only includes revenues and expenses directly related to the company's primary operations.
Example Question #5 : Income Statement
Which of the following items would not be included in income from continuing operations?
Gain on retirement of bonds
Both
Gain on disposal of a business component
Neither
Gain on disposal of a business component
Disposal of a business component would be included in discontinued operations, where as gain on retirement of bonds is a normal part of continuing operations.
Example Question #1 : Accounting Changes & Errors
The Charlotte Corporation buys a building on January 1, Year 1, for $900,000. The building is expected to have a useful life of 10 years and no salvage value. The double-declining balance method is used for depreciation purposes and the half-year convention is not elected. Early in Year 3, company officials decide to switch to the straight-line method of depreciation. What amount of depreciation expense should the company recognize in its Year 3 income statement?
$90,000
$57,600
$72,000
$62,400
$72,000
In Year 1, the company will report depreciation of $180K ($900K x 20%), bringing the year two beginning book value to $720K. In Year 2, the company will record depreciation of $144K ($720K x 20%), bringing the year 3 beginning book value to $576K. In Year 3, the company will amortize this amount evenly over the remaining 8 years of the asset's life.
Example Question #2 : Accounting Changes & Errors
Which of the following accounting changes would receive prospective treatment in the income statement?
Change in useful life of an asset
Both of these
Change in depreciation method
None of these
Both of these
Changes in depreciation and changes in estimated useful lifes are applied proactively, not retroactively.
Example Question #3 : Accounting Changes & Errors
Which of the following would be reported as an adjustment to beginning retained earnings for the earliest period presented?
Correction of an error in a period that is not being presented
Both of these
Cumulative effect of a change in inventory from FIFO to weighted average
None of these
Both of these
Both of these choices are presented as prior period adjustments by adjusting retained earnings in the earliest period presented.
Example Question #4 : Accounting Changes & Errors
Under IFRS, an entity is required to file the following financial statements initially?
2 statements of changes in equity
3 statements of comprehensive income
2 income statements
2 statements of cash flows
3 statements of comprehensive income
An entity just filing under IFRS needs to file 2 statements of; comprehensive income, income statements, cash flows, changes in equity, notes, and 3 balance sheets.
Certified Tutor
All CPA Financial Accounting and Reporting (FAR) Resources
