CPA Financial Accounting and Reporting (FAR) : Financial Reporting Standards
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 : 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
$62,400
$72,000
$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
Change in depreciation method
Both of these
None of these
Both of these
Changes in depreciation and changes in estimated useful lifes are applied proactively, not retroactively.
Example Question #3 : Financial Reporting Standards
Which of the following would be reported as an adjustment to beginning retained earnings for the earliest period presented?
None of these
Both of these
Correction of an error in a period that is not being presented
Cumulative effect of a change in inventory from FIFO to weighted average
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 : Financial Reporting Standards
Under IFRS, an entity is required to file the following financial statements initially?
2 statements of cash flows
2 income statements
3 statements of comprehensive income
2 statements of changes in equity
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.
Example Question #1 : Financial Reporting Standards
A city government is currently preparing fund-based financial statements. What guides the timing of recognition for the transactions to be reported?
Modified accrual accounting
Accrual accounting
Modified accrual accounting for the governmental funds and accrual accounting for the proprietary funds
Accrual accounting for the governmental funds and modified accrual accounting for the proprietary funds
Modified accrual accounting for the governmental funds and accrual accounting for the proprietary funds
Governmental funds are prepared using the modified accrual basis of accounting, while proprietary funds use regular accrual accounting.
Example Question #2 : Financial Reporting Standards
Which of the following is true regarding cash basis and accrual basis revenue in regards to accounts receivable?
Both of these
None of these
A decrease in accounts receivable from the beginning of the year to the end of the year generally represents cash collections.
Under the cash basis, revenue is recognized when the receivable is initially recorded.
A decrease in accounts receivable from the beginning of the year to the end of the year generally represents cash collections.
Under both the cash and accrual basis of accounting, reductions in accounts receivable is generally due to cash collections.
Example Question #3 : Financial Reporting Standards
When adjusting service revenue from cash basis to accrual basis, which of the following adjustments must be made?
The ending balance of accounts receivable must be added to cash fees collected
The beginning balance of accounts receivable must be added to cash fees collected
Beginning unearned service revenue must be subtracted from cash fees collected
Customer deposits received during the year must be added to cash fees collected
The ending balance of accounts receivable must be added to cash fees collected
To adjust cash received to accrual basis income, ending AR is added back to cash received and beginning AR is subtracted.
Example Question #4 : Financial Reporting Standards
Under modified accrual basis accounting, revenue is recognized when:
Earned
Neither
Both
Measurable and available
Measurable and available
Modified accrual is used by governmental funds and income is recognized when it can be reasonably measured and when it is available for usage during the year or 60 days after.
Example Question #1 : Ifrs Vs. Gaap
IFRS requires which revenue recognition method when the outcome of rendering services cannot be estimated reliably?
Cost recovery method
Installment sales method
Percentage of completion method
Completed contract method
Cost recovery method
IFRS requires that the cost recovery method be used with an outcome of rendering services is uncertain.
Example Question #10 : Financial Reporting Standards
Which of the following statements regarding research and development under IFRS is correct?
Under IFRS, research related costs are capitalized and development costs are expensed
Under IFRS, research and development related expenses are both capitalized
Under IFRS, research and development related expenses are both expensed
Under IFRS, research related costs are expensed and development costs are capitalized
Under IFRS, research related costs are expensed and development costs are capitalized
Under IFRS, research related costs are expensed and development costs are capitalized
All CPA Financial Accounting and Reporting (FAR) Resources
