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 #14 : Financial Reporting Standards
Which of the following is true about both timeliness and understandability according to the FASB conceptual framework?
Both are characteristics of relevance
Both are fundamental qualitative characteristics of useful financial information
Both are enhancing qualitative characteristics of useful financial information
Both are characteristics of faithful representation
Both are enhancing qualitative characteristics of useful financial information
Enhancing qualitative characteristics of financial reporting include timeliness, understandability, comparability, and verifiability.
Example Question #15 : Financial Reporting Standards
According to the FASB conceptual framework, revenue results from which of the following?
An increase in a liability from ancillary transactions
A decrease in an asset from primary operations
An increase in an asset from ancillary transactions
A decrease in a liability from primary operations
A decrease in a liability from primary operations
Revenue results from an overall reduction in liabilities, while expenses result from an overall increase in liabilities.
Example Question #1 : Conceptual Framework
How should the nondeductible portion of meals and entertainment expenses be reported in the financial statements on the income tax basis?
Excluded completely from the financial statements
Separately stated from determining income
Included in the expense category in the determination of income
Excluded from determining income but included in retained earnings
Included in the expense category in the determination of income
Using the income tax basis, nondeductible expenses should be included in the expense category in determining income.
Example Question #1 : Inventory Costing Methods
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
$88
$90
$86
$89
$88
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
Example Question #2 : Inventory Costing Methods
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
$18,000
$10,000
$13,000
$15,000
$13,000
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
Example Question #3 : Inventory Costing Methods
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
$2,592
$2,448
$2,538
$2,468
$2,448
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
Example Question #1 : Inventory Costing Methods
Of the following, which is not a legitimate method of inventory costing?
Discounted Method
Weighted Average
Dollar value LIFO
FIFO
Discounted Method
There is no such concept of a Discounted Method in inventory valuation.
Example Question #41 : Cpa Financial Accounting And Reporting (Far)
On July 1, Year 10, Cabaret Corporation factored $80,000 of its accounts receivable without recourse to Playtime Company. Playtime retains 10% of the accounts receivable as an allowance for sales returns and charges a 5% commission on the gross amount of factored receivables. How much cash did Cabaret receive from factoring its receivables?
$68,000
$76,000
$72,000
$80,000
$68,000
A total of 15% was held back by Playtime (10% for the allowance and 5% for the commission). Therefore, Cabaret received $80K x 85% (100% - 15%) = $68K.
Example Question #42 : Cpa Financial Accounting And Reporting (Far)
Which of the following situations is most likely to be treated as a sale of accounts receivables?
Pledging receivables in exchange for a loan
Factoring without recourse in exchange for cash
Discounting a note from a customer at a local bank
Factoring with recourse in exchange for cash
Factoring without recourse in exchange for cash
Factoring without recourse means that the original owner of the receivable has no responsibility should the customer never pay. This effectively means the the receivable has been sold.
Example Question #3 : Receivables
Walnut Company received from a customer an 1-year, $200,000 note bearing annual interest of 8%. After holding the note for 8 months, Walnut discounted the note at a local bank at an effective rate of 12%. What is the maturity value of the note?
$216,000
$200,000
$169,500
$226,000
$216,000
The maturity value of the note is the principal of $200K plus the interest due of $16K ($200K x 8%).
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