FAR CPA F3
M5-MCQ-03981 A transportation company purchased a passenger bus for $100,000 on January 1, year 1. The company expects the bus to be used for 20 years if it follows a maintenance schedule of replacing the engine after 10 years and replacing the seats every eight years. It estimates that the current cost to replace the engine is $25,000 and the current cost to replace the seats is $10,000. The company uses straight-line depreciation and the bus has no residual value. The company considers any component equal to or greater than 10% of the overall cost to be significant. Under IFRS, how much depreciation expense should the company recognize for the bus for the year ended December 31, year 1? A. $5,000 B. $7,000 C. $7,250 D. $8,500
B. $7,000 In order to derive the answer to the question you have to account for the engine and the seat separately after factoring into the bus cost. Bus: 100,000-25,000-10,000 = 65,000/ 20 years = 3250Engine: 25000/10 = 2500Seat: 10,000/8 = 1250 Total Depreciation = 2500+1250+3250 = 7000
M6-MCQ-04479 Jabber Corporation exchanged inventory with a fair market value of $80,000 and book value of $60,000 for identical amount of similar inventory from Kabber Corporation. The exchange lacks commercial substance. The inventory Jabber received had an indeterminate value, however, Kabber also paid cash of $15,000. As a result of this transaction, Jabber would record its new inventory at? A. $75,000 B. $60,000 C. $80,000 D. $48,750
D. $48,750 *The fair value of the asset received is not known, so we go with the fair value of the asset given up. We know Jabber received 15,000, so the FV of the asset it received is deemed to be 65,000. 15,000/80,000 = <25%, so we go with book value non monetary exchange rules.The recipient of the boot recognized gain to the extent of the ratio of boot received/boot + fv of asset received.65,000 (deemed FV) + 15,000 (cash) - 60,000 (carrying amount of asset given) = 20,000 potential gain.20,000 * (15,000/(15,000+65,000))= $3,750.*
M2-MCQ-04524 Morris Co. determined that the net realizable value of its accounts receivable at December 31, was $435,000. This estimate was based on an aging schedule. Additional information is as follows: Allowance for uncollectible accounts - January 1 $229,000 Uncollectible accounts written off $61,000 Accounts written off in prior years recovered $26,000 Accounts receivable at December 31 $700,000 What is Morris's uncollectible accounts expense for the year ended December 31? a. $71,000 b. $97,000 c. $123,000 d. $61,000
a. $71,000 Beginning balance --------------------- $229,000 Additions: recoveries --------------------- 26,000 Expense (squeeze) ------------------------ 71,000 Subtract: write-offs ----------------------- (61,000) Ending balance ($700,000 − 435,000) --$265,000
M7-MCQ-00152 On January 2, Year 1, Lava, Inc. purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, Year 4, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Lava charge against income during Year 4, assuming amortization is recorded at the end of each year? A. $9,000 B. $54,000 C. $63,000 D. $72,000
The useful life at the purchase date was 10 years which is used rather than the remaining 15 years. $90,000/10=$9,000 per year. Three years had lapsed and 3 years of amortization had been charged. 3 x 9,000 = 27,000. at December 31, year 4 the patent was withdrawn. The remaining unamortized amount would be $90,000-$27,000=$63,000.
M2-MCQ-05679 When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts? Accounts receivable -- Allowance for uncollectible accounts A. Increase --- Decrease B. Increase --- No effect C. No effect --- Decrease D. No effect --- Increase
Under the allowance method (GAAP), the following journal entries are recorded when an account previously written off is subsequently collected: Original JE - To record estimated A/R uncollectible: BDE 100Dr (Expenses go up, so profit ↓, RE ↓, Equity ↓) AFUA (Contra asset) 100Cr (AFUA increases, so Assets go down) A ↓ = L + E ↓ (The balance sheet balances) JE #1 - To restore the account previously written off: A/R 100dr AFUA 100Cr JE #2 - To record the cash collection on the account: Cash 100Dr A/R 100Dr
M2-MCQ-00274 When the allowance method of recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off would: a. Increase the allowance for uncollectible accounts. b. Increase net income. c. Decrease the allowance for uncollectible accounts. d. Have no effect on the allowance for uncollectible accounts.
a. Increase the allowance for uncollectible accounts. The journal entry passed for he collection of an account previously written off affect accounts receivable is : A/R xxxDr AFUA xxx Cr ( to reinstate the account ) Cash xxxDr A/R xxxCr ( to record the collection ) No effect on accounts receivable as it gets debited and credited with the same amount. It increases the allowance for uncollectible accounts as it is credited.
M5-MCQ-00385 A machine with a 5-year estimated useful life and an estimated 10% salvage value was acquired on January 1, Year 1. On December 31, Year 4, accumulated depreciation, using the sum-of-the-years' digits method, would be: a. (Original cost less salvage value) multiplied by 1/15. b. (Original cost less salvage value) multiplied by 14/15. c. Original cost multiplied by 14/15. d. Original cost multiplied by 1/15.
b. (Original cost less salvage value) multiplied by 14/15. Depriciation expense = (Cost - Salvage value) x (remaining life / SOYD) Total sum of years=(1+2+3+4+5)=15. Hence accumulated depreciation for the first four years would be=(5/15)+(4/15)+(3/15)+(2/15)=14/15
M1-MCQ-06964 Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:Bank service charge $10Insufficient funds check 650Checks outstanding 1,500Deposits in transit 350Check deposited by Hilltop and cleared by the bank for $125but improperly recorded by Hilltop as $152What is the net cash balance after the reconciliation? a) $52,363 b) $53,023 c) $53,050 d) $53,077
c) $53,050 The reconciling items that need to be adjusted to the bank balance are: checks outstanding (−1,500) and deposit in transit (+350). The net cash after the reconciliation is: Bank balance $54,200 − 1,500 + 350 = $53,050. The bank service charge and insufficient funds are already reflected in the bank balance. The error is on Hilltop's books, not on the bank statement, and therefore it does not need to be included in the reconciliation.
M2-MCQ-00276 When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a (an): a. Account previously written off is collected. b. Account previously written off becomes collectible. c. Specific uncollectible account is written off. d. Provision for uncollectible accounts is recorded.
c. Specific uncollectible account is written off. AFUA (contra asset) 700 Dr A/R 700 Cr *debit to AFUA decreases a contra asset, so increases your asset balance.* This has no effect on the income statement or total assets.
M5-MCQ-00144 Rye Co. purchased a machine with a four-year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, Year 2. In its income statement, what would Rye report as the depreciation expense for Year 4 using the double-declining-balance method? a. $20,000 b. $9,000 c. $18,000 d. $10,000
d. $10,000 The double-declining-balance rate is 50% (2 × 1/4 straight-line rate). The Year 2 expense is $40,000 (0.5 × book value of $80,000). The Year 3 expense is $20,000 [50% × book value of $40,000 ($80,000 − $40,000)]. The Year 4 expense is $10,000 [50% × book value of $20,000 ($40,000 − $20,000)]. -Cost is $80,000 and the Salvage value is 10% of that cost. -*Also, salvage value is not used in double-decline depreciation method. The 10% salvage value is irrelevant.*
M2-MCQ-00060 On March 31, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following: Age ------- Amount ---- Estimated uncollectible 0-30 days -- $60,000 ---- 5% 31-60 days -- 4,000 ---- 10% Over 60 days -- 2,000 ---- $1,400 What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet? a. $3,000 b. $4,000 c. $3,800 d. $4,800
d. $4,800 The $4,800 is the amount that needs to be the ending balance. Since there is already $1,000 in there, the credit would only have to be $3,800. Look at it like a T-account Allowance for Doubtful Accounts | 1,000Cr <Given (?)Dr | (?)Cr < Bad debt expense for the year; the amount that you must compute __________________________ | 4,800Cr <—-Balance, which is calculated with the percentages above Basically, they're asking you for the plug. If they said "credit balance is 1,000, bad debt expense for the year is 4,800, what is the balance?", then you would come to 5,800 like you did above. However, they are asking for the expense to bring the 1,000 to 4,800, the amount you calculated.
M6-MCQ-00718 Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for a truck and $4,000 cash. The fair value of the truck received was $16,000. At what amount should Amble record the truck received in the exchange under U.S. GAAP? A. $9,600 B. $12,000 C. $13,600 D. $16,000
dr. cash 4,000 dr. new truck (plug fig) 9600 cr. old truck 12,000 cr. gain on disposal on new truck 1,600 above transaction lacks commercial subs -- cash is recd --- therefore gain will be recognized based on % of cash recd to toal fair vale of assets given up here -- cash recd = 4000/20,000 FV of old truck & cash x (2000-12000) gain = 1600 PS - 4000/20000 = 20% < 25%, therefore gain is recognized in proportion to cash recd
M2-MCQ-00262 Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account: A. Increases the allowance for uncollectible accounts. B. Has no effect on the allowance for uncollectible accounts. C. Has no effect on net income. D. Decreases net income.
C. Has no effect on net income. AFUA (contra asset) 700 Dr A/R 700 Cr *debit to AFUA decreases a contra asset, so increases your asset balance.* This has no effect on the income statement or total assets.
M5-MCQ-00374 On July 1, year 4, one of Rudd Co.'s delivery vans was destroyed in an accident. On that date, the van's carrying value was $2,500. On July 15, year 4, Rudd received and recorded a $700 invoice for a new engine installed in the van in May year 4, and another $500 invoice for various repairs. In August, Rudd received $3,500 under it's insurance policy on the van, which it plans to use to replace the van. What amount should Rudd report as gain(loss) on disposal of the van in its year 4 income statement? a. $1,000 b. $300 c. $0 d. (200)
Based on the posts in this thread, this question demonstrates very clearly how careful you must be about the assumptions you make on such questions. The dilemma here is the $700 engine and whether the $2,500 included the capitalization for the new engine. In my studies for FAR the examiners seem to love questions like these where they can trick you into assuming that something that should've happened in fact did - in this case that the 700 was capitalized at the time the goods were delivered/services performed, but that didn't happen. In the question it says they didn't record the 700 until they received the invoice. They recorded the transaction late, but just because they recorded the transaction later than they should have doesn't mean it shouldn't be capitalized, therefore the adjusted book value of the truck would be the 3,200 resulting in the 300 gain at disposal. You must read the questions very carefully. Taking them at their face value will be a much more effective approach than trying to assume your way towards the correct answer.
M4-MCQ-07229 At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of $800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition? A. $72,500 B. $140,000 C. $132,000 D. $60,000
Basically we have to find the weighted average expenditures for the year first: 200,000 x 12/12= 200,000 600,000 x 8/12= 400,000 300,000 x 1/12= 25,000 Adds up to 625,000. So this is our average expenditures for the year. We then take the interest for our initial loan: 500,000 x 12%= 60,000 Then for the difference, we use the interest on other borrowings: 625,000- 500,000= 125,000 125,000 x 10%= 12,500 So for the year, it's 60,000 + 12,500= 72,500. This is how it should be done.
M2-MCQ-00261 Mill Co.'s allowance for uncollectible accounts was $100,000 at the end of Year 2 and $90,000 at the end of Year 1. For the year ended December 31, Year 2, Mill reported bad debt expense of $16,000 in its income statement. What amount did Mill debit to the appropriate account in Year 2 to write off actual bad debts? A. $6,000 B. $10,000 C. $16,000 D. $26,000
Beginning balance 12-31-Year 1 $90,000 Cr Add: Bad debt expense 16,000 Cr (BDE 16k AFUA CR) Subtotal 106,000 Less: Actual bad debt write-off (6,000) ← "Plug" Ending balance 12-31-Year 2 $100,000
M5-MCQ-00390 Ichor Co. reported equipment with an original cost of $379,000 and $344,000, and accumulated depreciation of $153,000 and $128,000, respectively, in its comparative financial statements for the years ended December 31, Year 10, and Year 9. During Year 10, Ichor purchased equipment costing $50,000, and sold equipment with a carrying value of $9,000. What amount should Ichor report as depreciation expense for Year 10? A. $19,000 B. $25,000 C. $31,000 D. $34,000
C. $31,000 Net equipment at end of Yr 9: $344,000-$128,000 = $216,000 Equipment purchase 50,000 Book value of equipment sold (9,000) 216,000 + 50,000 - 9,000 = 257,000 Depreciation in Yr 10 ? Equals net equipment at end of Yr 10: $379,000-$153,000 = $226,000 257,000-226,000 =31,000 Solving for depreciation yields $31,000 depreciation for Yr 10.
Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following: 12/31/Year 2 ------- 12/31/Year 1 Land $25,000 --- $25,000 Buildings 195,000 --- 195,000 Machinery & equipment 695,000 --- 650,000 PPE Gross 915,000 --- 870,000 Less accumulated depreciation 400,000 --- 370,000 Total$515,000 --- $500,000 Weir's depreciation expense for Year 2 and Year 1 was $55,000 and $50,000, respectively. What amount was debited to accumulated depreciation during Year 2 because of property, plant, and equipment retirements? a. $20,000 b. $25,000 c. $10,000 d. $40,000
Setting up a T-account might help you visualize this problem and squeeze into the debit. The prior periods ending balance is this years beginning balance, so accumulated depreciation (A/D) begins with a 370,000 credit balance. Depreciation Expense for the year was 55,000 (the prior years 50,000 is unnecessary information), so A/D increased to 425,000 after the journal entry posted. However, we are told the ending balance in A/D is only 400,000, so the company must have retired property, plant, and equipment that had 25,000 of associated A/D. 370,000 Beginning balance +55,000 Expense for the current period -400,000 Ending Balance =25,000 Debit to A/D
M2-MCQ-00008 Ward, a consultant, keeps her accounting records on a cash basis. During Year 2, Ward collected $200,000 in fees from clients. At December 31, Year 1, Ward had accounts receivable of $40,000. At December 31, Year 2, Ward had accounts receivable of $60,000, and unearned fees of $5,000. On an accrual basis, what was Ward's service revenue for Year 2? a. $175,000 b. $180,000 c. $215,000 d. $225,000
c. $215,000 *NOTE: Whatever JE you determine for the account in question, the opposite entry is to a revenue account (again, only if the question is asking about income/revenue)* A/R: Beginning $40,000 & ending $60,000. A/R increased by $20,000 (A/R 20,000Dr S/R 20,000Cr). Assets increased with a debit, therefore the JE for revenue is a credit U/R: Beginning $0 & ending $5,000. U/R increased by $5,000. Liabilities increase with a credit (Cash 5,00Dr U/R 5,000 Cr), therefore the JE for revenue is a debit 200,000 + 20,000 Cr - 5,000 Dr --------- 215,000
M3-MCQ-06569 Garson Co. recorded goods in transit purchased F.O.B. shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year end? Assets ------- Retained earnings a. No effect -- Understated b. No effect -- Overstated c. Understated -- No effect d. Understated -- Understated
d. Understated -- Understated You bought the goods, they're shipped FOB shipping point which means it becomes yours as soon as shipped. Because you didn't add them to ending inventory you have lower assets and you can assume your cogs would be overstated as a result giving you a lower NI which means lower retained earnings. Purchases go to the P&L as COGS. Had the goods been there during a physical inventory count, an adjusting entry would of been made to increase inventory and decrease purchases.
