FAR AICPA Released Questions
Lion Co.'s income statement for its first year of operations shows pretax income of $6,000,000. In addition, the following differences existed between Lion's tax return and records: Tax Accounting / Return Records Uncollectible accounts expense $220,000 / $250,000 Depreciation expense $860,000 / $570,000 Tax-exempt interest revenue - $50,000 Lion's current-year tax rate is 30% and the enacted rate for future years is 40%. What amount should Lion report as deferred tax expense in its income statement for the year?
$250,000 - $220,000 = $30,000 x 40% = $12,000 DTA $860,000 - $570,000 = $290,000 x 40% = $116,000 DTL $116,000 - $12,000 = $104,000
Selected information for Irvington Company is as follows: December 31, Year 1 / Year 2 Preferred stock, 8%, par $100, nonconvertible, noncumulative 125,000 / 125,000 Common Stock 300,000 / 400,000 Retained Earnings 75,000 / 185,000 Dividends paid on preferred stock for year ended 10,000 / 10,000 Net income for year ended 60,000 / 120,000 Irvington's return on common stockholder's equity, rounded to the nearest percentage point, for year 2 is: a. 17% b. 19% c. 23% d. 25%
(120,000 - 10,000) / ((375,000 + 585,000) / 2) = 23%
Pine Corp.'s books showed pretax income of $800,000 for the year ended December 31, year 3. In the computation of federal income taxes, the following data were considered: Gain on an involuntary conversion (Pine has elected to replace the property within the statutory period using total proceeds) $350,000 Depreciation deducted for tax purposes in excess of depreciable deducted for book purposes 50,000 Federal estimated tax payments, year 3 70,000 Enacted federal tax rate, year 3 30% What amount should Pine report as its current federal income tax liability on its December 31, year 3 balance sheet? A. $50,000 B. $ 65,000 C. $120,000 D. $135,000
A. $ 50,000 800,000 - 350,000 - 50,000 = 120,000 - 70,000 = 50,000
Arc Hospital received an unconditional pledge for $1 million, which will be paid in four installments of $250,000 over four years. What amount of pledge revenue should be recognized in the second year? A. $0 B. $250,000 C. $500,000 D. $1,000,000
A. $0 Pledge revenue will be recorded at the PV of $1 million (using an applicable discount rate) in the year the pledge was made. The difference between the amount pledged and the recognized pledge revenue reflects the time value of money and is reported as a discount (ie, contra account) on the pledge receivable. In the second year, no pledge revenue is recognized. As payments are received, Arc would debit cash and credit (1) the pledge receivable and (2) contribution revenue (not pledge revenue) to reflect the annual amortization of the discount.
The following data relates to Lely Township: Printing and binding equipment used for servicing all of Lely's departments and agencies, on a cost- reimbursement basis $100,000 Equipment used for supplying water to Lely's residents 900,000 Receivables for completed sidewalks to be paid for in installments by affected property owners 950,000 Cash received from federal government, dedicated to highway maintenance, which must be accounted for in a separate fund 995,000 How much could be accounted for in an Internal Service Fund? A. $100,000 B. $900,000 C. $950,000 D. $995,000
A. $100,000
Lyle, Inc. is preparing its financial statements for the year ended December 31, 2004. Accounts payable amounted to $360,000 before any necessary year-end adjustment related to the following: At December 31, 2004, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier, resulting from a $50,000 advance payment for goods to be manufactured to Lyle's specifications. Checks in the amount of $100,000 were written to vendors and recorded on December 29, 2004. The checks were mailed on January 5, 2005. What amount should Lyle report as accounts payable in its December 31, 2004 balance sheet? A. $510,000 B. $410,000 C. $310,000 D. $210,000
A. $510,000
A local government established a new special revenue fund during the current year. The fund incurred the following transactions: Purchased new machines - five-year life $140,000 Paid interest debt 300,000 Paid debt principal 200,000 Paid management salaries 100,000 Purchased office equipment - four-year life 100,000 Paid utilities 50,000 Purchased office supplies (1/2 used up) 20,000 If the unit expects the assets to have no salvage value, what amount would be recognized as expenditures for the current year? A. $910,000 B. $713,000 C. $513,000 D. $450,000
A. $910,000 governmental funds (i.e. special revenue funds) = modified accrual accounting
Which of the following is an example of a transaction involving a market participant? A. A company purchases real estate zoned for recreational use. B. A company purchases a commercial rental property from a company that is owned by the same shareholders. C. A judge orders a company to sell machinery during a bankruptcy proceeding. D. A company sells land to a local government to satisfy an outstanding tax lien.
A. A company purchases real estate zoned for recreational use.
The FASB makes changes to the Accounting Standards Codification by issuing A. Accounting Standards Updates. B. Emerging Issues Task Force Releases. C. Statements of Financial Accounting Standards. D. Staff Technical Bulletins.
A. Accounting Standards Updates.
A company issued a financial instrument that unconditionally requires the company to settle the obligation by issuing common stock with a value of $500,000 on the settlement date. How should the company report this instrument in its financial statements? A. As a liability in the balance sheet. B. As an equity instrument in the balance sheet. C. By only disclosing a liability in the notes. D. By only disclosing an equity instrument in the notes.
A. As a liability in the balance sheet.
A company has 10,000 shares of common stock issued and 2,000 shares of treasury stock. The par value of the stock is $10 per share. On January 1, Year 1, the company declared a 5% dividend to be paid in cash on June 30, Year 1. What journal entry should the company record on the declaration date? A. Debit retained earnings for $4,000 and credit dividends payable for $4,000. B. Debit dividends expense for $4,000 and credit dividends payable for $4,000. C. Debit dividends expense for $5,000 and credit dividends payable for $5,000. D. Debit retained earnings for $5,000 and credit dividends payable for $5,000.
A. Debit retained earnings for $4,000 and credit dividends payable for $4,000. Retained earnings (8,000 shares × 5% dividend × $10 per share)
A local government should report expenses, excluding special or extraordinary items, by which of the following in its government-wide statement of activities? A. Function B. Major source. C. Major then minor funds. D. Descending order by amount.
A. Function.
How should a U.S. publicly traded company report a change in fair value of a hedged available for-sale security attributable to foreign exchange risk if the hedge is a fair value hedge? A. In earnings. B. In other comprehensive income. C. As a contra-asset related to the hedge. D. As a change in the cost basis of the hedge.
A. In earnings.
A statement of activities prepared by a nongovernmental not-for-profit organization is most similar to which of the following financial statements prepared by a for-profit entity? A. Income statement. B. Balance sheet. C. Statement of cash flows. D. Statement of changes in stockholders' equity.
A. Income statement.
A holder of a variable interest that is not the primary beneficiary acquired additional variable interests in the variable interest entity (VIE). What action, if any, should follow? A. The holder of the variable interest should reconsider whether it is now the primary beneficiary. B. The holder of the variable interest should use the voting-interest model to determine whether the VIE should be consolidated. C. The primary beneficiary should discontinue consolidation of the VIE because the election to consolidate is no longer allowed. D. No action is necessary because the primary beneficiary of a VIE does not change subsequent to the initial assessment.
A. The holder of the variable interest should reconsider whether it is now the primary beneficiary.
A nongovernmental not-for-profit organization may report on which of the following basis and remain in compliance with generally accepted accounting principles (GAAP)? A. Cash. B. Accrual. C. Modified cash. D. Modified accrual.
Accrual
Co. exchanged a machine with a fair value of $25,000 for a new machine with a fair value of $20,000 and received $5,000 in cash. The old machine cost $80,000 and had accumulated depreciation of $64,000. The exchange transaction lacked commercial substance. What amount of gain should Jones recognize on the exchange? A. $0 B. $1,800 C. $7,200 D. $9,000
B. $1,800 (5,000/25,000) x 9,000 = 1,800
On June 10, a company issued two thousand $1,000 5% bonds, payable in 10 years. Each bond contained a detachable warrant that provided a right to purchase five shares of $1 par common stock for $30. The value of the warrants at issuance was $50 each. On June 30, the market rate of interest was 9%. At the time of issuance, what amount was the increase in shareholders' equity? A. $60,000 B. $100,000 C. $200,000 D. $300,000
B. $100,000 2,000 shares x $50
Bigco, Inc. transferred long-term receivables with a carrying value of $500,000 and a fair value of $450,000 to Banco for $425,000 cash. Of the $450,000 fair value, $45,000 is attributable to collection of future fees and penalties, which Bigco will retain. The surrender of control requirements have been met, therefore the transfer qualifies as a sale. What amount of loss should Bigco recognize at the time of the transfer? A. $ -0- B. $25,000 C. $50,000 D. $75,000
B. $25,000 FV transferred $450,000 - cash received $425,000
A company reported $130,000 in income from continuing operations for its first year of operations. The tax-basis depreciation deduction for the year exceeded GAAP depreciation expense by $12,500, and the warranty accrual exceeded the amount spent for warranty repairs by $8,300. The company properly calculated a $840 increase in its deferred tax liability for the year. If the enacted tax rate for the current year is 20%, what amount of income taxes payable should be reported in the year-end balance sheet? A. $24,340 B. $25,160 C. $26,000 D. $26,840
B. $25,160 ($130,000 - $12,500 + $8,300) x 20%
On December 12, 20X8, Imp Co. entered into a forward exchange contract to hedge a firm commitment to purchase equipment being manufactured to Imp's specifications. The forward contract was to purchase 100,000 Euros in 90 days as a fair value hedge of the equipment. The relevant direct exchange rates were as follows: Spot Rate / Forward Rate (for 3/12/X9) December 12, 20X8 $1.86 / $1.80 December 31, 20X8 $1.96 / $1.83 At December 31, 20X8, what amount of foreign currency transaction gain should Imp include in income from this forward contract only? (Ignore discount and present value considerations.) A. $-0- B. $3,000 C. $6,000 D. $10,000
B. $3,000 $100,000 ($1.83 - $1.80 = $0.03) = $3,000
A company reports on the cash basis. During the company's first year of business, it had sales on account of $1,000,000, inventory purchases on account of $400,000, and other expenses of $200,000. At the end of the year, the company had accounts receivable, inventory, and inventory related accounts payable of $100,000, $10,000, and $50,000, respectively. What is the company's cash-basis income for its first year of operations? A. $300,000 B. $350,000 C. $400,000 D. $450,000
B. $350,000
On January 2, 2004, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due January 2, 2007. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type on January 2, 2004, was 10%. The present value of $1 at 10% for three periods is 0.75. In Emme's 2004 income statement, what amount should be reported as interest income? A. $9,000 B. $45,000 C. $50,000 D. $60,000
B. $45,000 $600,000 x .75 x 10%
Ted Co.'s income statement for its first year of operations shows pretax income of $8,000,000. In addition, the following differences existed between Ted's tax return and records: Tax return / Accounting records Bad debt expense $300,000 / $250,000 Depreciation expense 700,000 / 500,000 Ted's current-year tax rate is 25%, and the enacted rate for future years is 30%. What should Ted report as deferred tax consequences in its balance sheet for the year? A.$45,000 deferred tax liability B. $75,000 deferred tax liability C. $15,000 deferred tax liability D. $60,000 deferred tax liability
B. $75,000 deferred tax liability $500,000 diff + $200,000 diff x 30%
On June 30, 2000, King Co. had outstanding 9%, $5,000,000 face value bonds maturing on June 30, 2005. Interest was payable semi-annually every June 30 and December 31. On June 30, 2000, after amortization was recorded for the period, the unamortized bond premium and bond issue costs were $30,000 and $50,000, respectively. On that date, King acquired all its outstanding bonds on the open market at 98 and retired them. On redemption of the bonds at June 30, 2000, what amount should King recognize as gain before income taxes? A. $20,000 B. $80,000 C. $120,000 D. $180,000
B. $80,000 5,000,000 + 30,000 - 50,000 = 4,980,000 - 4,900,000 = 80,000
At the beginning of the year, Stam Co. had 200,000 shares of common stock issued and outstanding. On March 31, the company issued 40,000 additional shares. On July 1, it declared and distributed a 50% stock dividend and on September 30 repurchased 10,000 shares as treasury stock. What amount of shares should Stam use to calculate basic earnings per share? A. 287,500 B. 342,500 C. 345,000 D. 360,000
B. 342,500 1/1 = 200,000 shares 3/31 = 40,000 x 9/12 = 30,000 7/1 = 230,000 x 50% = 115,000 9/30 = 10,000 x 3/12 = -2,500 = 342,500
Which of the following types of agreement represents a split-interest arrangement? A. A perpetual trust naming ABC as sole beneficiary. B. A charitable remainder trust. C. A direct bequest to ABC in the donor's will. D. A direct gift to ABC to be made by the donor next year.
B. A charitable remainder trust.
Under the modified accrual basis of accounting for governmental funds of a governmental unit, revenues should be recognized in the accounting period in which they A. Become available and earned. B. Become available and measurable. C. Are earned and become measurable. D. Are collected.
B. Become available and measurable.
When a purchase order is released, a commitment is made by a governmental unit to buy a computer to be manufactured to specifications for use in property tax administration. This commitment should be recorded in the general fund as a(n) A. Appropriation. B. Encumbrance. C. Expenditure. D. Fixed asset
B. Encumbrance.
Bramble, Inc. reported the following at the end of year 1: revenue, $100,000; assets, $300,000; and operating profit, $50,000. One of Bramble's product lines reported the following at the end of year 1: revenue, $10,000; assets, $35,000; and operating profit, $3,000. Which of the following classifications should Bramble use to describe this product line for financial statement presentation purposes? A. Operating segment. B. Reportable segment. C. Subsidiary. D. Asset group.
B. Reportable segment.
Which of the following adjustments is necessary to convert cash receipts to revenues as reported on an accrual basis? A. Add beginning accounts receivable to cash receipts from customers. B. Subtract ending contract liability from cash receipts from customers. C. Subtract ending accounts receivable from cash receipts from customers. D. Subtract beginning contract liability from cash receipts from customers.
B. Subtract ending contract liability from cash receipts from customers.
A company owns a financial asset that is actively traded on two different exchanges (market A and market B). There is no principal market for the financial asset. The information on the two exchanges is as follows Quoted price of asset / Transaction costs Market A $1,000 / $75 Market B $1,050 / $150 What is the fair value of the financial asset? A. $ 900 B. $ 925 C. $1,000 D. $1,050
C. $1,000 Market A = $1,000 - $75 = $925 Market B = $1,050 - $150 = $900 Most advantageous market is A and is recorded at cost
On January 1, Year 1, a company granted some of its key employees stock options for 100,000 shares of $3 par common stock when the fair value of each option was $6 per share. The options vest after three years of service. What is the compensation expense, if any, for the year ended December 31, Year 1? A. $0 B. $100,000 C. $200,000 D. $600,000
C. $200,000
On January 1, year 1, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000, which included a control premium. On this date, the full fair value of Shaw was $1,175,000. On the acquisition date the carrying amount of Shaw's net assets was $1,000,000 and the original cost to the noncontrolling interest shareholders was $200,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount. Those plant assets had a 10-year remaining life, depreciated on a straight-line basis. Shaw had a net income of $190,000 and paid cash dividends totaling $125,000. Which one of the following is the amount of noncontrolling interest that should be reported in a consolidated balance sheet prepared December 31, year 1? A. $213,000 B. $235,000 C. $246,000 D. $248,000
C. $246,000 January 1, Year 1 NCI equity ($1,175,000 x 20%) $235,000 + Year 1 Net Income (190,000 × .2)38,000 − Year 1 Dividends (125,000 × .2)(25,000) − Year 1 Depreciation of plant assets (10,000 × .2)( 2,000) December 31, year 1 NCI equity$246,000
A local government recorded revenues as follows: personal income tax, $200,000; sales taxes, $100,000; and property taxes, $150,000. What should the local government report as total derived tax revenue? A. $100,000 B. $150,000 C. $300,000 D. $450,000
C. $300,000
Simm Co. has determined its December 31 inventory on a LIFO basis to be $400,000. Information pertaining to the inventory follows: Inventory Information / Amount Estimated selling price / $408,000 Estimated cost of disposal / 20,000 Normal profit margin / 60,000 Current replacement cost / 390,000 At December 31, what should be the amount of Simm's inventory? A. $400,000 B. $390,000 C. $388,000 D. $328,000
C. $388,000
On January 1, Year 1, a company has capitalized software costs of $1,200,000 related to software that it intends to begin selling in Year 1. The company estimates that the software has an economic life of four years and will generate $3,000,000 of sales and leasing revenue over the next four years. In Year 1, the company earned $1,000,000 in sales and leasing revenue related to the software. What amount of expense should be recognized from amortizing the software costs for the year ended December 31, Year 1? A. $300,000 B. $350,000 C. $400,000 D. $1,200,000
C. $400,000 SL method = $1,200,000 / 3 years = $400,000 Sales method = $1,000,000 / $3,000,000 = 33.33% x $1,200,000 = $400,000 Greater of the two is used
On April 1, West Co. purchased a tract of land as a factory site for $500,000. An old building on the site was razed, and materials salvaged from the demolition were sold. Additional costs incurred and salvage proceeds realized during April were as follows: Description / Amount Costs to raze old building / $60,000 Legal fees for purchase contract and to record ownership / 12,000 Title guarantee insurance / 14,000 Proceeds from sale of salvaged materials / 9,000 In its April 30 balance sheet, what amount should West report as land? A. $526,000 B. $551,000 C. $577,000 D. $586,000
C. $577,000 $500,000 + $60,000 + $12,000 + $14,000 - $9,000
During 20X4, Burr Co. had the following transactions pertaining to its new office building: Purchase price of land $60,000 Legal fees for contracts to purchase land 2,000 Architects' fees 8,000 Demolition of old building on site 5,000 Sale of scrap from old building 3,000 Construction cost of new building (fully completed) 350,000 In Burr's December 31, 20X4 Balance Sheet, what amounts should be reported as the cost of land and cost of building? Land / Building A. $60,000 / $360,000 B. $62,000 / $360,000 C. $64,000 / $358,000 D. $65,000 / $362,000
C. $64,000 / $358,000 Land includes the demolition of the old building on site and sale scrap from old building.
Alder Corp. had the following stockholders' equity balances at the beginning of the current year: Common stock 200,000 shares authorized, $1 par; 15,000 shares issued and outstanding $15,000 Additional paid-in capital 24,000 Retained earnings 11,000 During the current year, Alder issued 2,000 shares of common stock with a fair value of $35 per share to Terry Brady on a subscription basis. Terry made a down payment of $3,500, but shortly thereafter defaulted on the subscription. What would be the debit to additional paid-in capital if Alder returned the $3,500 to Terry? A. $73,500 B. $70,000 C. $68,000 D. $66,500
C. $68,000 [($35 - $1) per share × 2,000 shares]
In the current year a nongovernmental, not-for-profit entity incurred $630,000 in expenditures during the year. It also received donated legal services, which otherwise would have cost $40,000, and consumed donated supplies with a value of $15,000. What should the entity report as total expenses in its statement of activities for the current year? A. $630,000 B. $645,000 C. $685,000 D. $670,000
C. $685,000
The controller of Pane Co. was preparing the company's financial statements. Pane had a wholly owned subsidiary in a foreign country that used the euro as its currency. At December 31, the exchange rate was $1 U.S. for 1.25 euro. The weighted-average exchange rate for the year was $1 U.S. for 1.50 euro. At December 31, the subsidiary had assets of 1 million euro and revenue for the year of 2 million euro. What amounts would assets and revenue translate for consolidation? Assets / Revenue A. $666,666 / $1,333,333 B. $666,666 / $1,600,000 C. $800,000 / $1,333,333 D. $800,000 / $1,600,000
C. $800,000 / $1,333,333 Assets and liabilities use the current exchange rate and income statement items use a weighted average exchange rate
The equity method would be used if a company owned what percentage of its investee company's stock? A. 5% B. 15% C. 25% D. 75%
C. 25% 0-20% = FV or cost-impairment loss 20-50% = FV or equity 50-100% = cost or equity
Markson Co. traded a concrete-mixing truck with a book value of $10,000 to Pro Co. for a cement-mixing machine with a fair value of $11,000. Markson needs to know the answer to which of the following questions in order to determine whether the exchange has commercial substance? A. Does the book value of the asset given up exceed the fair value of the asset received? B. Is the gain on the exchange less than the increase in future cash flows? C. Are the future cash flows expected to change significantly as a result of the exchange? D. Is the exchange nontaxable?
C. Are the future cash flows expected to change significantly as a result of the exchange?
A publicly-traded corporation reported a $10,000 deduction in its current-year tax return for an item it expects to be disallowed. The tax rate is 40%. How should the corporation report this tax position in the financial statements? A. As a temporary difference disclosed in the notes to the financial statements that is not recognized B. As a $10,000 deferred tax asset C. As a $4,000 income tax expense and a $4,000 liability for an unrecognized tax benefit D. As a $4,000 deferred tax asset and a $4,000 income tax benefit
C. As a $4,000 income tax expense and a $4,000 liability for an unrecognized tax benefit
In year 1, a donor promised to give $100,000 to a nongovernmental, not-for-profit kitchen if it provides 20,000 meals by March 31, year 2. At the end of year 1, the kitchen had provided 20,000 meals. In which line item, if any, should the contribution be reported in the kitchen's statement of financial position at the end of year 1? A. Cash. B. Deferred revenue. C. Contributions receivable. D. The contribution should not be reported in the statement of financial position.
C. Contributions receivable.
Dale Corp. successfully patented a medical diagnostic machine. Five years after receiving the patent, Dale was legally challenged by Bisk Corp., which had a similar machine. Dale spent $600,000 to successfully defend the patent. How should Dale treat the $600,000? A. Record it as a research and development expense. B. Create a separate intangible account and amortize it. C. Debit the patent account and amortize it. D. Reduce the stockholders' equity by a prior-period adjustment.
C. Debit the patent account and amortize it. The capitalized cost of a patent includes the legal costs of obtaining it and successfully defending it in court.
Which of the following statements concerning contracts that are financial instruments is/are correct? I. They result in the exchange of cash or ownership interest in an entity. II. They impose on one entity a contractual obligation and grant another entity a contractual right. III. They must be settled within one year or the operating cycle, whichever is longer. A. I only. B. II only. C. I and II only. D. I, II, and III.
C. I and II only.
Which of the following statements concerning the determination of fair value is/are correct? I.The determination of fair value is based on a hypothetical transaction.II.The determination of fair value is based on an exit price.III.The determination of fair value of a nonfinancial asset should be based on the intended use of the asset by the reporting entity. A. I only. B. II only. C. I and II only. D. II and III only.
C. I and II only.
A subsidiary, acquired for cash in a business combination, owned inventories with a market value different from the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference as part of: A. Deferred Credits B. Goodwill C. Inventories D. Retained Earnings
C. Inventories
When the recoverability of a building's carrying amount is determined to be impaired, the building's fair value is best measured as the A. Price the building can be sold for in an advantageous market. B. Selling price less transaction costs to complete the sale for this type of building in its principal market. C. Price that can be received for this type of building based on observable inputs in its principal market. D. Price determined using internal cost estimates to construct a similar building.
C. Price that can be received for this type of building based on observable inputs in its principal market.
A government entity is required to include a statement of cash flows in which of the following financial statements? A. Governmental fund financial statements. B. Government-wide financial statements. C. Proprietary fund financial statements. D. Fiduciary fund financial statements.
C. Proprietary fund financial statements.
Which of the following would create a deferred tax asset? A. Receiving interest from a municipal bond. B. Selling equipment on an installment note. C. Requiring prepayment for service contracts. D. Using the modified accelerated cost recovery system of depreciation.
C. Requiring prepayment for service contracts.
Which of the following common characteristics of derivative financial instruments distinguishes them from other types of financial instruments? A. They impose a contractual obligation by one entity to deliver cash to a second entity to convey a contractual right. B. They are financial investments in stocks, bonds, or other securities that are marketable. C. They have a notional amount or payment provision that is based on the changes in one or more underlying variables. D. Most financial instruments are valued on the balance sheet at fair value, but derivatives are valued on the balance sheet at cost.
C. They have a notional amount or payment provision that is based on the changes in one or more underlying variables.
Which of the following is not required in the budgetary comparison schedule presented by a state or local government as part of required supplementary information? A. The original budget. B. The final appropriated budget. C. Variances between the final budget and actual amounts. D. Actual inflows, outflows, and balances stated on a budgetary basis.
C. Variances between the final budget and actual amounts.
Which of the following is a qualitative characteristic that enhances the usefulness of financial information? A. Neutrality. B. Materiality. C. Verifiability. D. Confirmatory value.
C. Verifiability.
A county that operates a capital projects fund for infrastructure needs had the following information available on transactions for the current year: Proceeds from debt issuance $1,000,000 Transfer from general fund 500,000 Special assessments 400,000 Fees for extra services 100,000 How much would the capital projects fund report as other financing sources for the current year? A. $500,000 B. $900,000 C. $1,000,000 D. $1,500,000
D. $1,500,000 Other financing sources = $1,500,000 County's revenues = $500,000 ($400,000 + $100,000)
A customer is considering buying a television set with a retail price of $2,000. The customer asks the store manager if the store will consider paying the sales tax so that the total cash payment is $2,000. The sales tax is 8%. The store manager agrees to accept $2,000 cash. What should the accountant credit in this transaction? Sales / Sales tax payable A. $2,000 / $0 B. $1,840 / $160 C. $2,000 / $148 D. $1,852 / $148
D. $1,852 / $148 $2,000 / 1.08
On the first day of the year, a donor established a $100,000 irrevocable perpetual trust with a third-party trustee naming a not-for-profit entity as the sole income beneficiary in perpetuity. During the year, the trust earned and distributed $4,000 in income to the entity for unrestricted use. On the last day of the year, the fair value of the trust had increased by $5,000. What amount should the entity report in its year-end statement of financial position as beneficial interest in perpetual trust? A. $96,000 B. $100,000 C. $101,000 D. $105,000
D. $105,000
What measurement focus and basis of accounting should be used by a local government's private-purpose trust fund? Measurement Focus / Basis of Accounting A. Current financial resources / Modified accrual B. Economic resources / Modified accrual C. Current financial resources / Accrual D. Economic resources / Accrual
D. Economic resources / Accrual
Lamb Corp. has taxable income of $240,000 and depreciation expense for tax purposes of $50,000 greater than financial reporting purposes. Lamb has a tax rate of 30%, and no other differences exist. Which of the following entries should Lamb make for deferred taxes? A. $87,000 deferred tax asset. B. $72,000 deferred tax asset. C. $57,000 deferred tax liability. D. $15,000 deferred tax liability.
D. $15,000 deferred tax liability. $50,000 x 30%
On January 2, 20X5, Dix Machine Shops, Inc. signed a 10-year noncancelable lease for a heavy-duty drill press. The lease stipulated annual payments of $30,000 starting at the end of the first year, with the title passing to Dix at the expiration of the lease. Dix treated this transaction as a lease. The drill press has an estimated useful life of 15 years, with no salvage value. Dix uses straight-line depreciation for all of its fixed assets. Aggregate lease payments were determined to have a present value of $180,000, based on implicit interest of 10%. In its 20X5 income statement, what amount of interest expense should Dix report from this lease transaction? A. $0 B. $12,000 C. $15,000 D. $18,000
D. $18,000
Lime Co.'s payroll for the month ended January 31, 2005, is summarized as follows: Total wages $10,000 Federal income tax withheld 1,200 All wages paid were subject to FICA. FICA tax rates were 7% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its financial statements for the month ended January 31, 2005, what amounts should Lime report as total payroll tax liability and as payroll tax expense? Liability / Expense A. $1,200 / $1,400 B. $1,900 / $1,400 C. $1,900 / $700 D. $2,600 / $700
D. $2,600 / $700 10,000 x .14 = 1,400 + 1,200 = 2,600
On January 2, 20X9, the beginning of its fiscal year, Zable, Inc. acquired all of the stock of Sideco, Inc. from its owners using the following forms and amounts of consideration to pay Sideco owners: - Cash $50,000 - An investment in Loco, Inc. bonds which Zable had designated as held-for-trading, and which had a cost of $100,000 and a carrying amount of $102,000. - Land, with a cost of $50,000 and a fair value of $60,000. Which one of the following is the total amount of consideration Zable paid to acquire Sidco? A. $200,000 B. $202,000 C. $210,000 D. $212,000
D. $212,000
At the beginning of Year 2, a government entity had a $500,000 judgment outstanding. The government entity paid $400,000 of the judgment during Year 2. The remaining balance of the judgment includes $25,000 payable early in Year 3 and $75,000 payable at the end of Year 4. What amount should the government entity report as a liability for the judgment in its Year 2 governmental fund financial statements? A. $500,000 B. $100,000 C. $75,000 D. $25,000
D. $25,000 Under modified accrual, governmental fund liabilities are recognized to the extent that they will be paid for with available resources. This generally means that current liabilities are accrued as they are due within the next year and will be paid for with currently available resources. Conversely, long-term liabilities are likely paid with future, unavailable resources and therefore are not accrued.
King City Council will be establishing a library fund. Library fees are expected to cover 55% of the library's annual resource requirements. King has decided that an annual determination of net income is desirable in order to maintain management control and accountability over the library. What type of fund should King establish in order to meet their measurement objectives? A. Special revenue fund B. General fund C. Internal service fund D. Enterprise fund
D. Enterprise fund
Glass Co. had net income of $70,000 during the year. Depreciation expense was $10,000. The following information is available: Accounts receivable increase $20,000 Equipment gain on sale (sale price $100,000) 10,000 increase Nontrade notes payable increase 50,000 Equipment purchases 40,000 Accounts payable increase 30,000increase What amount should Glass report as net cash provided by investing activities in its statement of cash flows for the year? A. $(40,000) B. $10,000 C. $50,000 D. $60,000
D. $60,000 $100,000 gain - $40,000 equip purch
Ian Co. is calculating earnings per share amounts for inclusion in the Ian's annual report to shareholders. Ian has obtained the following information from the controller's office as well as shareholder services: Net income from January 1 to December 31 $125,000 Number of outstanding shares: January 1 to March 31 15,000 April 1 to May 31 12,500 June 1 to December 3117,000 In addition, Ian has issued 10,000 incentive stock options with an exercise price of $30 to its employees and a year-end market price of $25 per share. What amount is Ian's diluted earnings per share for the year ended December 31? A. $4.63 B. $4.85 C. $7.35 D. $7.94
D. $7.94 basic EPS = 15,000(3/12) + 12,500(2/12) + 17,000(7/12) = 15,750. Basic EPS = $125,000/15,750 = $7.94 The stock options are antidilutive because the exercise price exceeds the average market price of the stock.
The following information is from Mabel Co.'s year-end financial statements for the current and previous years: Current year / Previous year Prepaid expenses $ 10,000 / $ 20,000 Accounts payable 50,000 / 30,000 Land 250,000 / 600,000 Land was sold during the current fiscal year for cash resulting in a loss of $40,000. What is Mabel's net adjustment to net income to determine net cash from operating activities? A. ($70,000) B. $0 C. $30,000 D. $70,000
D. $70,000 + increase $20,000 CL + decrease $10,000 CA + loss $40,000 = $70,000
A company reported the following for the current year: Retained earnings appropriated for plant expansion$32,500 Correction of understated depreciation expense from prior periods 9,300 Unrealized loss on available-for-sale debt securities 8,100 Unrealized gain on foreign currency translation 3,400 The company's current-year net income was $86,500, and the company has a 30% effective income tax rate. What amount of comprehensive income should be reported for the current year? A. $40,000 B. $76,700 C. $81,800 D. $83,210
D. $83,210 86,500 - (8,100 x 30%) - (3,400 x 30%)
Dayne County's general fund had the following disbursements during the year: Payment of principal on long-term debt $100,000 Payments to vendors 500,000 Purchase of a computer 300,000 What amount should Dayne County report as expenditures in its governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances? A. $300,000 B. $500,000 C. $800,000 D. $900,000
D. $900,000
In its first four years of operations ending December 31, 20X2, Alder, Inc.'s depreciation for income tax purposes exceeds its depreciation for financial-statement purposes. This temporary difference is expected to reverse in 20X3, 20X4, and 20X5. Alder's 2002 balance sheet should include A. A non-current contra asset for the effects of the difference between asset bases for financial-statement and income tax purposes. B. Both current and non-current deferred tax assets. C. A current deferred tax liability only. D. A non-current deferred tax liability only.
D. A non-current deferred tax liability only.
When a CPA is applying the enhancing qualitative characteristics of useful financial information, it is important for the CPA to remember that A. Each of the four enhancing qualitative characteristics should be given equal priority. B. The enhancing qualitative characteristics could compensate for unfaithful representation. C. Cost is a secondary consideration when applying the enhancing qualitative characteristics. D. Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
D. Applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
Which of the following is considered part of the required supplementary information for general purpose external financial reporting of a local government? A. Fund financial statement. B. Combining nonmajor fund statement. C. Notes to the financial statements. D. Management discussion and analysis.
D. Management discussion and analysis.
In a company's notes to its financial statements, the first note described significant changes in accounting policies related to valuations of inventory and plant assets. Subsequent notes included a separate note detailing inventories and a separate note detailing plant assets. For which of these subsequent notes, if any, should the company duplicate a description of its changes to significant accounting policies? A. The plant assets note, but not the inventory note. B. The inventory note, but not the plant assets note. C. Both the plant assets note and the inventory note. D. Neither the inventory note nor the plant assets note.
D. Neither the inventory note nor the plant assets note.
In preparing consolidated financial statements of a U.S. parent company with a foreign subsidiary, the foreign subsidiary's functional currency is the currency A. In which the subsidiary maintains its accounting records. B. Of the country in which the subsidiary is located. C. Of the country in which the parent is located. D. Of the environment in which the subsidiary primarily generates and expends cash.
D. Of the environment in which the subsidiary primarily generates and expends cash.
In which of the following circumstances would trademarks acquired by an entity most likely be deemed to have an indefinite useful life? A. The entity pays substantial amounts of money to renew the trademarks. B. The entity operates in an industry with a rapidly changing regulatory environment governing trademarks. C. The entity plans to use the trademark until the planned phase-out date of the underlying asset. D. The entity's trademark has a remaining legal life of five years but is renewable at very little cost.
D. The entity's trademark has a remaining legal life of five years but is renewable at very little cost.
A company signed a five-year contract with a customer in year 1 and agreed to modify the contract at the beginning of year 2. Which of the following is a condition that must be present in order for the contract modification to be accounted for as a separate contract? A. The original contract is terminated. B. The price of the original contract remains the same. C. The performance obligations of the original contract are partially satisfied. D. The scope of the original contract increases through the addition of distinct goods or services.
D. The scope of the original contract increases through the addition of distinct goods or services.
What is the difference between an acquisition, merger and consolidation?
In an acquisition, one preexisting entity acquires controlling interest in another preexisting entity, and both continue to exist as separate legal entities, with the acquired entity a subsidiary of the acquiring entity. In a merger, one preexisting entity is combined into another preexisting entity; no new entity is formed. In a legal consolidation, the combination of two or more existing entities combine into one new entity.
LLA, Inc. was capitalized through the issuance of 10,000 shares of $30 par common stock that was sold at $50 per share. LLA had net income as follows: Year 1 $100,000 Year 2 200,000 If, during Year 2, LLA paid dividends to its shareholders at $25 per share, what amount was LLA's retained earnings balance and shareholders' equity balance at the end of Year 2?
RE = Year 1 NI $100,000 + Year 2 NI $200,000 - Year 2 dividends $250,000 = $50,000 Shareholder's equity = Common stock $300,000 + APIC $200,000 ($50-$30 x 10,000) + RE $50,000 = $550,000
The following information is available for Bart Company for year 1: Disbursements for purchases 580,000 Increase in trade accounts payable 50,000 Decrease in merchandise inventory 20,000 Cost of goods sold for year 1 was a. 650,000 b. 610,000 c. 550,000 d. 510,000
a. 650,000
For a defined contribution plan: a. the employee bears the risk of market fluctuations in plan assets b. the employer bears the risk of market fluctuations in plan assets c. the companies in which the plan assets are invested bear the risk d. the pension plan administrator
a. the employee bears the risk of market fluctuations in plan assets
Combined financial statements may be used to present the results of operations of Unconsolidated subsidiaries / companies under common management a. yes / yes b. yes / no c. no / yes d. no / no
a. yes / yes
A company that uses the accrual method of accounting started the fiscal year with assets of 600,000 and liabilities of 400,000. During the fiscal year the company recorded credit sales of 250,000, of which 8,000 remained to be collected at year end, and incurred expenses of 90,000, of which 72,000 was paid in cash. A stock dividend values at 10,000 was declared and issues to stockholders during the year. What is the year-end balance of total equity? a. 350,000 b. 360,000 c. 370,000 d. 380,000
b. 360,000 600,000 assets - 400,000 liabilities = 200,000 beg equity 250,000 rev - 90,000 exp = 160,000 200,000 + 160,000 = 360,000
Company A and Company B exchanged nonmonetary assets with no monetary consideration involved and no impairment of value. The exchange did not result in the cash flows of the new asset being significantly different than the cash flows of the old asset. The accounting should be based on the a. recorded amount of the asset received b. recorded amount of the asset relinquished c. fair value of the asset received d. fair value of the asset relinquished
b. recorded amount of the asset relinquished
Which of the following statements is true regarding the fir value option for valuing financial assets and liabilities? a. the fair value option must be applied to all instruments in that classification b. the fair value option must be applied to all interest in the same entity c. the fair value option cannot be revoked until the next balance sheet date d. the fair value option can be applied to a portion of a financials instrument
b. the fair value option must be applied to all interest in the same entity
In financial reporting for segments of a business, an enterprise shall disclose all of the following except a. types of products and services from which each reportable segment derives its revenues b. the title of the chief operating decision maker of each reportable segment c. factors used to identify the enterprises reportable segments d. the basis of measurement of segment profit or loss and segment assets
b. the title of the chief operating decision maker of each reportable segment
Thyme, Inc. owns 16,000 of Sage Co.'s 20,000 outstanding common shares. The carrying value of Sage's equity is $500,000. Sage subsequently issues an additional 5,000 previously unissued shares for $200,000 to an outside party that is unrelated to either Thyme or Sage. What is the total noncontrolling interest after the additional shares are issued? a. 140,000 b. 172,000 c. 252,000 d. 300,000
c. 252,000 16,000 - 5,000 = 9,000 / 25,000 = 36% 700,000 x 36% = 252,000
In accounting for a long-term construction contract using the percentage-of completion method, the amount of income recognized in any year would be added to a. deferred revenue b. progress billings on contracts c. construction in progress d. property, plant and equipment
c. construction in progress
Edmond Bank approves a 10-year loan to Matt. In doing so, Esmond Bank incurs $2,000 of loan origination costs (attorney fees, title insurance, wages of employees'' direct work on loan origination). The loan origination fees shall be a. deferred and recognized upon final payment of the loan b. reported as service fee income c. deferred and recognized over the life of the loan as an adjustment of yield (interest income) d. recognized as revenue when the loan is granted
c. deferred and recognized over the life of the loan as an adjustment of yield (interest income)
How are discontinued operations that occur at midyear initially reported? a. disclosed only in the notes to the year-end financials statements b. included in net income and disclosed in the notes to the year-end financials statements c. included in net income and disclosed in the notes to interim financial statements d. disclosed only in the notes to interim financial statements
c. included in net income and disclosed in the notes to interim financial statements
In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as a revenue at the lease's inception b. should be recognized over the period of the lease using the straight-line method c. should be recognized over the period of the lease using the effective interest method d. does not arise
c. should be recognized over the period of the lease using the effective interest method
Miriam Corporation commonly enters into leases as the lessee of equipment. In Miriam's disclosures, it must report a. the breakout of the cost for finance leases associated with the amortization of the right-of-use asset and interest on the lease liability for each lease that qualifies as a finance lease b. finance lease information only because operating leases are common and their existence is assume by financial statement users c. the aggregate amount of future minimum lease payments and the amount for each of the succeeding five years for finance and operating leases d. the aggregate amount of future minimum lease payments and the amount for each of the succeeding five years for finance, operating and short-term leases
c. the aggregate amount of future minimum lease payments and the amount for each of the succeeding five years for finance and operating leases
A company issued bonds with detachable common stock warrants. The issue price exceeded the sum of the warrants' fair value and face value of the bonds. The fair value of the bonds cannot be determined. What value, if any, should be assigned to the warrants? a. the excess of the proceeds over the face value of the bonds b. the proportion of the proceeds that the warrants' fair value bears to the face value of the bonds c. the fair value of the warrants d. no amount, because the total proceeds should be assigned to the bonds
c. the fair value of the warrants
On December 31 of the current year, Letterman Co's COGS amounted to 1,050,000. However, Letterman's auditors determined the beginning merchandise inventory was understated by 20,000 and the ending merchandise inventory was overstated by 12,000. What is the correct COGS for the current year? 1. 1,018,000 b. 1,042,000 c. 1,058,000 d. 1,082,000
d. 1,082,000
The comparative balance sheets for Wellington Inc. reported the following information at December 31, year 1 and year 2: December Year 1 / Year 2 Retained earnings 140,000 / 210,000 Accumulated other comprehensive income 35,000 / 30,000 Wellington declared cash dividends of $20,000 in year 2. The decrease in accumulated other comprehensive income for year 2 was due to unrealized losses on A4S debt securities. For the year ended December 31, year 2, what was Wellington's comprehensive income? a. 65,000 b. 95,000 c. 90,000 d. 85,000
d. 85,000 70,000 diff in RE + 20,000 dividends - 5,000 AOCI
A company entered into a loan with a lender for 100,000 and pledged a 120,000 of the company's accounts receivable as collateral. The lender does not have the right to sell or repledge the accounts receivable. When the company received the cash for the loan proceeds, what entry, if any, should be made to accounts receivable? a. credit A/R 20,000 b. credit A/R 100,000 c. credit A/R 120,000 d. no entry is made to A/R
d. no entry is made to A/R no entry is required because the lender does not have the right to sell or repledge
During the current year, a company discovered it had overstated sales in the prior year. How should the company handle this issue? a. adjust sales for the current period b. spread the adjustment over the current and future periods c. present the cumulative effect of the overstatement as an item in the current period income statement d. restate the prior year financial statements presented for comparative purposes
d. restate the prior year financial statements presented for comparative purposes overstatement is considered an error
Which of the following statements is false regarding inventory costing methods? a. if inventory quantities are to be maintained, part of the earnings must be invested in inventories when FIFO is used during a period of rising prices b. LIFO tends to smooth out the net income patterns since it matched current cost of goods sold with current revenue, when inventories remain at constant quantities c. when a firm using the LIFO method fails to maintain its usual inventory position, there may be a matching of old costs with current revenue d. the uses of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO
d. the uses of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO
When does GAAP require interest costs to be capitalized?
during the period an asset is being prepared for its intended use (e.g.) construction
