CPA Exam FAR

Arc Hospital received an unconditional pledge for $1M, 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

Thompson Corp. owned a machine that cost $80,000 and had accumulated deprecation of $50,000, an estimated salvage value of $5,000 and a fair value of $150,000. In January, the machine was damaged by Snow Corp. and became worthless. In October, a court awarded damages of $150,000 against Snow in favor of Thompson. On December 31, the final outcome of the case was awaiting appeal. Thompson's attorney believes Snow's appeal will be denied. What amount should Thompson accrue for this gain contingency on December 31? A) $0 B) $5,000 C)$125,000 D) $150,000

A) $0

A company had the following transactions during the year: Principal payments on NP $48,000 Interest payments on NP $8,000 Cash payments to purchase 100 shares $25,000 of another company's common stock What amount is classified as cash outflow for financing activities in the company's statement of cash flows? A) $48,000 B) $56,000 C) $73,000 D) $81,000

A) $48,000

A local government establishes 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

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 lands to a local government to satisfy an outstanding tax lien.

A) A company purchases real estate zoned for recreational use.

A company has 10,000 shares of common stock issued and 2,000 shares of treasure 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.

How should a US 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 b ya for-profit entity? A) Income Statement. B) Balance Sheet. C) Statement of cash flows. D) Statement of changes in stockholder's equity.

A) Income Statement.

Jones 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

On January 1, Lyle Co. purchased a manufacturing facility. After remodeling was completed, the facility was ready for use on March 1. On April 1 production began. Interest costs were incurred as follows: January 1 - March 1 March 1 - April 1 Building $10,000 $5,000 Remodeling $2,000 $3,000 What amount of interest should Lyle capitalize during the current year? A) $10,000 B) $12,000 C) $15,000 D) $20,000

B) $12,000

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

Nelson Corp. paid $1,000,000 cash to purchase 100% of the outstanding common stock of Orange Corp. on April 1 of the current year. Examination of Orange's assets and liabilities reveals the following: Book Value Fair vale on April 1 Cash $100,000 $100,000 Marketable securities $200,000 $250,000 Land $50,000 $300,000 Accounts Payable $75,000 $75,000 Stockholder equity $275,000 Nelson should record what amount of goodwill as a result of this acquisition? A) $350,000 B) $425,000 C) $725,000 D) $1,000,000

B) $425,000

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

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.

B) Accrual.

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 rom 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 rom customers.

Artic Corp., located in India, was a wholly-owned foreign subsidiary of Axis Corp. Artic's primary economic environment was within the country of India. On a limited basis, Axis made transaction with its subsidiary denominated in US dollars. At year end, what would be the functional currency for Artic? A) The US dollar. B) The local currency. C) Dependent on each transaction. D) The parent company's currency.

B) The local currency.

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, 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. 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

Grant Co. issued $500,000 face value, five-year, 8% bonds on December 31, year 1. The bonds pay interest annually, and were sold to yield 7%. Present vale factors are as follows: PV of $1, 5 periods PV of ordinary annuity of $1, 5 periods PV of annuity due of $1, 5 periods What amount of long-term liability should Grant report on December 31, year 1, for this sale? A) $500,000 B) $512,777 C) $520,501 D) $531,981

C) $520,501

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 Additional paid-in capital Retained earnings 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

The controller of Pane Co. was preparing the company's financial statements. Pane had a wholly owned subsidiary in a foreign county that used the euro as its currency. At December 31, the exchange rate was $1 US for 1.25 euro. the weighted-average exchange rate for the year was $1 US 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 $1,333,33 B) $666,666 $1,600,000 C) $800,000 $1,333,333 D) $800,000 $1,600,000

C) $800,000 $1,333,333

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%

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 stockholder's equity by a prior-period adjustment.

C) Debit the patent account and amortize it.

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 prepayments for service contracts. D) Using the modified accelerated cost recovery system of depreciation.

C) Requiring prepayments for service contracts.

Alpha Co. has $100 billion in assets, $100 billion in revenues, and $10 billion in profits for the current year. There are four operating segments that report directly to the chief operating officer. Which of the following segments is required to present key disclosures? Segment Assets Revenues Profits 1 $40 $70 $10.5 2 $30 $16 $0.5 3 $21 $9 $(1.5) 4 $9 $5 $0.5 A) Segment 1 B) Segments 1 & 2 C) Segments 1, 2, & 3 D) Segments 1, 2, 3, & 4

C) Segments 1, 2, & 3

A company uses a periodic inventory system and has its cost of ending inventor understated by $4,000. Which of the following describes the effects of this error on the company's current-year's costs of goods sold and net income, respectively? Cost of goods sold Net income A) Understated Understated B) Understated Overstated C) Overstated Understated D) Overstated Overstated

Cost of goods sold Net income C) Overstated Understated

A county that operates a capital projects fund for infrastructure need had the following information available on transaction for the current year: proceeds from debt insurance $1,000,000 transfer from general fund $500,000 special assessments $400,000 fees for extra cervices $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

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 year2 governmental fund financial statements? A) $500,000 B) $100,000 C) $75,000 D) $25,000

D) $25,000

Chatham Co. owned 25% of the voting stock of Boyrum Co. Chatham applied the equity method to account for this investment. Boyrum reported income of $100,000 and paid $30,000 in cash dividends during the period. What amount should Chatham report as investment income? A) $0 B) $7,500 C) $17,500 D) $25,000

D) $25,000

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

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 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

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

Which of the following statements describes the relationship of interest expense related to bonds payable when a discount on bonds payable has been recorded suing the effective interest method? A) Interest expense will be the same each year. B) Interest expense will decrease each year. C) Interest expense will increase by the same amount each year. D) Interest expense will increase by a larger amount each year.

D) Interest expense will increase by a larger amount each year.

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 earning balance and shareholders' equity balance at the end of year 2? Retained Earnings Shareholder's Equity A) $50,000 $550,000 B) $50,000 $800,000 C) $300,000 $550,000 D) $300,000 $800,000

Retained Earnings Shareholder's Equity A) $50,000 $550,000