Question CPA00001

According to the FASB and IASB conceptual frameworks, the primary users of financial reports
include all of the following, except:
a. Lenders. b. Investors.
c. Regulators. d. Creditors
Question CPA00004
According to the FASB and IASB conceptual frameworks, useful information must exhibit the
fundamental qualitative characteristics of:
b. Faithful representation and relevance.
Question CPA00005
What is the underlying concept governing the recording of gain contingencies?
a. Conservatism.
Question CPA00006
According to the FASB conceptual framework, which of the following attributes would not be used
to measure inventory?
a. Net realizable value.
b. Present value of future cash flows.
c. Replacement cost.
d. Historical cost.
Question CPA00007
According to the FASB and IASB conceptual frameworks, the objective of general purpose
financial reporting is to:
Provide financial information that is useful to primary users.
Question CPA00010
According to the FASB and IASB conceptual frameworks, completeness is an ingredient of:
Faithful
Completeness is an ingredient of faithful representation
Question CPA00012
What is the underlying concept that supports the immediate recognition of a contingent loss?
Conservatism.
Question CPA00013
According to the FASB conceptual framework, the process of reporting an item in the financial
statements of an entity is:
a. Recognition.
Allocation - process of assigning or distributing an amount according to a plan or a formula.
Matching of costs and revenues is simultaneous or combined recognition of the revenues and
expenses that result directly and jointly from the same transactions or other events
Realization is the process of converting noncash resources and rights into money.
Question CPA00015
Financial information provided in general purpose financial reports does not include information
about:
a. The resources of the entity.
b. The claims against the entity.
How effectively and efficiently the entity's management and governing board have discharged
their responsibilities to use the entity's resources.
Question CPA00017
According to the FASB conceptual framework, which of the following statements conforms to the
realization concept?
a. Depreciated equipment was sold in exchange for a note receivable.
Question CPA00020

On December 31, Brooks Co. decided to end operations and dispose of its assets within three
months. At December 31, the net realizable value of the equipment was below historical cost.
What is the appropriate measurement basis for equipment included in Brooks' December 31
balance sheet?
c. Net realizable value.
Choice "c" is correct. Net realizable value is the appropriate measurement basis for equipment
included in Brooks' Dec. 31 balance sheet, because of the decision to end operations and quickly
(3 months) dispose of its assets.
Question CPA00022
According to the FASB and IASB conceptual frameworks, which of the following is an enhancing
qualitative characteristic?
Timeliness, understandability, comparability and verifiability are characteristics that enhance the
usefulness of information that is relevant and faithfully represented.
Question CPA05058
A U.S. public company needs guidance in accounting for and reporting a complex derivative
transaction that it entered into with a European subsidiary. This company is most likely to find
the appropriate guidance in the:
Choice "b" is correct. The FASB Accounting Standards Codification is the single source of U.S.
GAAP. U.S. public companies are required to follow U.S. GAAP.
Question CPA05065
Which of the following is not defined in FASB Statement of Financial Accounting Concepts
Number 7 as one of the five elements of present value (or economic value) measurement used to
establish the value of assets or liabilities using cash flow information?
UVOTE:
U The Price for Bearing Uncertainty.
V Expectations about Timing Variations of Future Cash Flows.
O Other Factors (e.g., Liquidity Issues and Market Imperfections).
T Time Value of Money (the Riskfree Rate of Interest).
E Estimate of Future Cash Flow.
Question CPA05420
d. Managerial accounting need not follow generally accepted accounting principles (GAAP) while
financial accounting must follow them
Question CPA05434
Which of the following is a generally accepted accounting principle that illustrates the practice of
conservatism during a particular reporting period?
c. Reporting inventory at the lower of cost or market value.
The rule of conservatism states that revenues and gains should be recognized when the earnings
process is complete, but that expenses and losses should be expensed immediately. Reporting
inventory at the lower of cost or market requires the recording of a loss on inventory when
market is lower than cost in the period the loss is sustained, rather than when the inventory is
sold, consistent with the rule of conservatism.
Question CPA05197
According to the FASB and IASB conceptual frameworks, the quality of information that helps
users forecast future outcomes is:
Question CPA05234
Which of the following assumptions means that money is the common denominator of economic
activity and provides an appropriate basis for accounting measurement and analysis?
d. Monetary unit
Choice "d" is correct. The monetary unit assumption means that money is the common
denominator for economic activity and provides an appropriate basis for accounting
measurements and analysis.
Question CPA05906

According to the FASB conceptual framework, certain assets are reported in financial statements
at the amount of cash or its equivalent that would have to be paid if the same or equivalent
assets were acquired currently. What is the name of the reporting concept?
c. Replacement cost.
Question CPA05235
Which of the following statements best describes an operating procedure for issuing FASB
Accounting Standards Update?
An Accounting Standards Update is issued only after a majority vote of the members of the FASB.
Question CPA05907
According to the FASB and IASB conceptual frameworks, to be relevant, information should have
which of the following?
To be relevant, information should have predictive value and/or confirming value, and must be
material. Choice "c" is incorrect. Completeness is a component of faithful representation.
Question CPA06060
According to the FASB and IASB conceptual frameworks, one of the fundamental qualitative
characteristics of useful financial information is:
Choice "b" is correct. Relevance and faithful representation are the fundamental qualitative
characteristics of useful financial information. Choice "c" is incorrect. Comparability is an
enhancing qualitative characteristic.
Question CPA06061
According to the FASB and IASB conceptual frameworks, neutrality is an ingredient of:
b. Faithful representation
Choice "b" is correct. Neutrality, which is freedom from bias in selection or presentation, is an
ingredient of faithful representation. Choice "d" is incorrect. Relevance is a fundamental
qualitative characteristic along with faithful representation, and not an ingredient.
Question CPA06062
According to the IASB conceptual framework, which of the following is an underlying assumption
of financial statement preparation and presentation?
c. Going concern.
Choice "c" is correct. Under the IASB framework, going concern is the underlying assumption of
financial statement preparation and presentation. Choice "a" is incorrect. This is a fundamental
assumption under the FASB framework, not the IASB framework.
Question CPA06063
Which of the following is the most authoritative source of U.S. GAAP?
a. FASB Accounting Standards Codification.
Choice "a" is correct. The FASB Accounting Standards Codification is the single source of
authoritative nongovernmental U.S. GAAP. Choice "d" is incorrect. The International Financial
Reporting Standards are not an authoritative source of U.S. GAAP.
Question CPA06064
Which of the following statements best describes an operating procedure for issuing a new
International Financial Reporting Standard?
a. An exposure draft is issued after approval by at least nine members of the IASB.
Choice "a" is correct. Before an exposure draft is issued for then public comment, it must be
approved by at least nine members of the IASB.
Question CPA06591
According to the FASB and IASB conceptual frameworks, which of the following correctly pairs a
fundamental qualitative characteristic of useful information with one of its components?
a. Relevance and materiality.
The 6 enhancements are not components

Question CPA08267
Which of the following documents is typically issued as part of the dueprocess activities of the
Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards
Codification?
Choice "b" is correct. A proposed accounting standards update is prepared by the FASB as part of
the dueprocess activities.
Question CPA08471
Materiality and relevance are both defined by:
What influences or makes a difference to a decision maker.
Choice "b" is correct. The accountant's determination of materiality and relevance is based on
professional judgment and is affected by the needs of those who will be using the financial
statements to make decisions.
Question CPA08472
According to the FASB conceptual framework, for financial reporting to be useful, it must:
Provide information useful for making business and investment decisions
Choice "d" is correct. According to the FASB conceptual framework, for financial reporting to be
useful it must provide information which is useful to existing and potential investors, lenders, and
other creditors in making decisions about the reporting entity based on the financial information
provided.
Question CPA00035
On December 2, Year 1, Flint Corp.'s board of directors voted to discontinue operations of its
frozen food division and to sell the division's assets on the open market as soon as possible. This
decision represents a major strategic shift for Flint and will have a significant effect on operations
and financial results. The division reported net operating losses of $20,000 in December and
$30,000 in January. On February 26, Year 2, sale of the division's assets resulted in a gain of
$90,000. Assuming that the frozen foods division qualifies as a component of the business and
ignoring income taxes, what amount of gain/loss from discontinued operations should Flint
recognize in its income statement for Year 2?
$60,000
Choice "b" is correct. The $60,000 gain from discontinued operations would be reported in Flint's
Year 2 income statement. The operating loss for January would offset the gain from disposal in
February, and the net amount would be reported as a gain (in this case) from discontinued
operations. The operating losses for December would have been reported in Flint's Year 1 income
statement.
Question CPA00037
At December 31, Year 2, OffLine Co. changed its method of accounting for demo costs from
writing off the costs over two years to expensing the costs immediately. Off Line made the
change in recognition of an increasing number of demos placed with customers that did not
result in sales. OffLine had deferred demo costs of $500,000 at December 31, Year 1, $300,000
of which were to be written off in Year 2 and the remainder in Year 3. OffLine's income tax rate is
30%. In its Year 3 financial statements, what amount should OffLine report as cumulative effect
of change in accounting principle?
b.
$0
Choice "b" is correct. A change in method of accounting for demo costs is a change in accounting
principle inseparable from a change in estimate. When a change in accounting principle is
considered inseparable from a change in estimate, the change is handled as a change in
estimate prospectively. No cumulative effect adjustment is made.
Question CPA00038
How should the effect of a change in accounting principle that is inseparable from the effect of a
change in accounting estimate be reported?
b. As a component of income from continuing operations.
Choice "b" is correct. When the effect of a change in accounting principle is inseparable from the
effect of a change in accounting estimate, the reporting treatment for the overall effect is as a
change in estimate. Thus, the effect is reported prospectively as a component of income from
continuing operations.

Question CPA00043
In September, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakes are rare
in the area in which the plant was located. The portion of the resultant loss not covered by
insurance was $700,000. Koff's income tax rate for 1996 was 40%. In its yearend income
statement, what amount should Koff report as extraordinary loss under U.S. GAAP?
d.
$420,000
Choice "d" is correct. For a loss to be reported as an extraordinary loss under U.S. GAAP, the
event causing the loss must be both unusual in nature and infrequent in occurrence. The
earthquake in this case does meet these criteria so the loss is reported net of income tax effect
as an extraordinary loss of $420,000 (60% of the total $700,000 loss).
Question CPA00045
During January Year 3, Doe Corp. agreed to sell the assets and product line of its Hart division.
The decision represents a major strategic shift for Doe and will have a significant effect on its
operations and financial results. The sale was completed on January 15, Year 4 and resulted in a
gain on disposal of $900,000. Hart's operating losses were $600,000 for Year 3 and $50,000 for
the period January 1 through January 15, Year 4. Disregarding income taxes, what amount of net
gain (loss) should be reported in Doe's comparative Year 4 and Year 3 income statements?
Year 3 Year 4
a.
$(600,000) $850,000
Choice "a" is correct. The Year 3 operating losses would be reported in the Year 3 income
statement. The Year 4 operating losses and the gain on disposal would be netted and reported in
the Year 4 income statement. Each amount would be reported in the period it occurred.
Question CPA00046
On April 30, Deer Corp. approved a plan to dispose of a component of its business. The decision
represents a major strategic shift for Deer and will have a significant effect on its operations and
financial results. For the period January 1 through April 30, the component had revenues of
$500,000 and expenses of $800,000. The assets of the component were sold on October 15 at a
loss. In its income statement for the year ended December 31, how should Deer report the
component's operations from January 1 to April 30?
b. $300,000 should be reported as a loss from operations of a component and included in loss
from discontinued operations.
Choice "b" is correct. Once the decision has been made to dispose of a component of a business
and that component meets the criteria to be classified as held for sale, the operating results of
the component for the period reported on, and any gain or loss from the disposal, should be
reported separately from continuing operations, net of tax. In this question, the component was
classified as held for sale and was sold in the same year.
Thus, the results of operations, the $300,000 ($500,000$800,000) loss, are reported as a loss
from discontinued operations. The loss on disposal would be reported as part of that loss from
discontinued operations also.
Question CPA00047
In open market transactions, Gold Corp. simultaneously sold its longterm investment in Iron Corp.
bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two
transactions. Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the
Iron bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature
and has occurred infrequently. Under U.S. GAAP, Gold should report the:
b. Effect of its own bond transaction as an extraordinary gain, and report the Iron bond
transaction loss in income before extraordinary items. c. Net effect of the two transactions as an
extraordinary gain.
Choice "b" is correct. These are two separate transactions because Gold Corp. (1) sold Iron Corp.
bonds (an investment) for a loss, and, (2) bought back its own (Gold) Corp. bonds (a debt) for a
gain.
This is not a "refinancing" (where one would sell new bond debt to buy back old bond debt
outstanding). The gain from the purchase of its own bonds is an "extraordinary gain" because it
is both unusual in nature and infrequently occurring. The Iron Corp. transaction is a loss in
"income before extraordinary items" under U.S. GAAP.

Question CPA00050
During the current year, both Raim Co. and Cane Co. suffered losses due to the flooding of the
Mississippi River. Raim is located two miles from the river and sustains flood losses every two to
three years. Cane, which has been located 50 miles from the river for the past 20 years, has
never before had flood losses. How should the flood losses be reported in each company's
income statement under U.S. GAAP?
Raim
Cane
b. As a component of income from continuing operations As an extraordinary item
Raim component of income from continuing operations. Because Raim sustains flood losses
every two to three years, the flood losses are not "infrequent." Thus, the flood loss is not an
"extraordinary item."
Cane as an extraordinary item. Here, the flood losses are infrequent because Cane never before
(in the last 20 years) had flood losses. Furthermore, the flood losses are unusual in nature in that
they are unrelated to the ordinary and typical activities of the company.
Note that under IFRS, the flood losses of both companies would be reported as a component of
income from continuing operations because IFRS prohibits the reporting of gains/losses as
extraordinary.
Question CPA00051
Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during the
current year. The cumulative effect of this change should be reported in
Lore's current year financial statements as a:
a. Prior period adjustment resulting from the correction of an error
Choice "a" is correct. The cash basis for financial reporting is not a generally accepted
accounting basis of accounting (GAAP) therefore, it is an error. Correction of an error from a prior
period is a reported as prior period adjustment to retained earnings.
Question CPA00052
Which of the following should be included in general and administrative expenses?
Interest No, Advertising - No
Choice "c" is correct. Interest expense is classified as a separate line item on the income
statement. Advertising is classified as a selling expense.
Question CPA00054
Under U.S. GAAP, a material loss should be presented separately as a component of income
from continuing operations when it is:
a. Not unusual in nature but infrequent in occurrence.
Choice "a" is correct. Gains or losses that are unusual in nature or occur infrequently but
not both, are presented as a component of income from continuing operations.
extraordinary items are shown net of tax in a separate section of the income statement after
income from continuing operations.
Question CPA00055
On October 1, 20X4, Host Co. approved a plan to dispose of one of the company's operating
segments. The decision represents a major strategic shift for Host and will have a significant
effect on its operations and financial results. Host expected that the sale would occur on April 1,
20X5 at an estimated gain of $350,000. The segment had actual and estimated operating losses
as follows:
1/1/X4 to 9/30/X4
$(300,000) Entire period, not since the decision! Exclude estimates &
projections
10/1/X4 to 12/31/X4
(200,000)
1/1/X5 to 3/31/X5
(400,000)
In its 20X4 income statement, what should Host report as a loss from discontinued operations
before income taxes?
b.
$500,000
Choice "b" is correct. In its 20X4 income statement, Host would include in its loss from
discontinued operations the 20X4 losses but not the projected 20X5 operating losses and not the
projected gain on disposal. The 20X4 losses are $500,000 in total. The projected 20X5 operating
loss of $400,000 and the projected gain on disposal would be included in its 20X5 income
statement.

Question CPA00063
During Year 2, Orca Corp. decided to change from the FIFO method of inventory valuation to the
weightedaverage method. Inventory balances under each method were as follows:
Orca should report the cumulative effect of this accounting change as a(n):
a. Adjustment to beginning retained earnings.
Choice "a" is correct. The cumulative effect of a change in accounting principle is shown as an
adjustment to beginning retained earnings.
Question CPA00066
Under U.S. GAAP, a transaction that is unusual in nature and infrequent in occurrence should be
reported separately as a component of income:
a. After discontinued operations of a segment of a business.
Choice "a" is correct. An extraordinary item (a transaction that is both "unusual in nature" and
"infrequent in occurrence") should be reported separately as a component of income after
discontinued operations of a segment of a business.
The cumulative effect of a change in accounting principle is shown on the retained earnings
statement. This is why memorizing the mnemonic "idea" is so important.
Question CPA00068
How should the effect of a change in accounting estimate be accounted for?
d. In the period of change and future periods if the change affects both.
Choice "d" is correct, a "change in accounting estimate" affects only the current and subsequent
(future) periods, if the change affects both. It does not affect "prior periods," nor "retained
earnings."
Question CPA00069
Foy Corp. failed to accrue warranty costs of $50,000 in its December 31, Year 1, financial
statements. In addition, a $30,000 change from straightline to accelerated depreciation was
made at the beginning of Year 2. Both the $50,000 and the $30,000 are net of related income
taxes. What amount should Foy report as prior period adjustments in Year 2?
a.
$50,000
Choice "a" is correct. $50,000. The cumulative effect of a change in accounting principle is now
shown on the retained earnings statement as an adjustment to the beginning balance of retained
earnings, assuming that the cumulative effect can be calculated.
An exception is made however, for a change in depreciation method, since a change in
depreciation method is no longer considered to be a change in accounting principle. A change in
depreciation method is now considered to be both a change in method and a change in estimate.
These changes should now be accounted for as a change in estimate and handled prospectively.
The new depreciation method should be used as of the beginning of the year of change and
should start with the current book value of the underlying asset. No retroactive or retrospective
calculations should be made, and no adjustment should be made to retained earnings.
Question CPA00071
Per U.S. GAAP, which of the following statements is correct regarding accounting changes that
result in financial statements that are, in effect, the statements of a different reporting entity?
b. The financial statements of all prior periods presented should be restated.
Choice "b" is correct. Financial statements of all prior periods presented should be restated when
there is a "change in entity" such as resulting from:
1. Changing companies in consolidated financial statements.
2. Consolidated financial statements vs. Previous individual financial statements.
Question CPA00072
Under U.S. GAAP, the effect of a material transaction that is infrequent in occurrence but not
unusual in nature should be presented separately as a component of income from continuing
operations when the transaction results in a:
Gain Loss - Yes Yes
Choice "a" is correct, Yes Yes. Under U.S. GAAP, a material transaction that is "infrequent in
occurrence" but not "unusual in nature" should be presented separately as a component of

"income from continuing operations" when the transaction results in a gain or loss, while
transactions that are unusual and infrequent are reported as extraordinary items.
Question CPA00073
Under U.S. GAAP, an extraordinary item should be reported separately on the income statement
as a component of income:
After discontinued operations of a segment of a business
Net of income taxes
Choice "c" is correct, Yes No. Under U.S. GAAP, an extraordinary item should be reported
separately on the income statement as a component of income: Yes net of income taxes.
Question CPA00076
On January 2, Year 3, to better reflect the variable use of its only machine, Holly, Inc. elected to
change its method of depreciation from the straightline method to the units of production
method. The original cost of the machine on January 2, Year 1, was $50,000, and its estimated
life was 10 years. Holly estimates that the machine's total life is 50,000 machine hours. Machine
hours usage was 8,500 during Year 2 and 3,500 during Year 1.
Holly's income tax rate is 30%. Holly should report the accounting change in its Year 3 financial
statements as a(n):
Choice "d" is correct. A change in the method of depreciation is now considered to be both a
change in method and a change in estimate. These changes should be accounted for as changes
in estimate and handled prospectively. The new depreciation method should be used as of the
beginning of the year of change and should start with the current book value of the underlying
asset. No retroactive or retrospective calculations should be made, and no adjustment should be
made to retained earnings.
Question CPA00079
Under U.S. GAAP, if a company is not presenting comparative financial statements, the correction
of an error in the financial statements of a prior period should be reported, net of applicable
income taxes, in the current:
a. Retained earnings statement as an adjustment of the opening balance.
Choice "a" is correct. The correction of an error in the financial statements of a prior period
should be reported, net of tax, in the current statement of retained earnings as an adjustment of
the opening balance.
Question CPA00081
For Year 1, Pac Co. estimated its twoyear equipment warranty costs based on $100 per unit sold
in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110
per unit. The effect of this $10 difference from the estimate is reported:
. b. In Year 2 income from continuing operations.
Choice "b" is correct. The effect of the new estimate of warranty costs (from $100 to $110) is a
change in estimate and will be reported in Year 2 income from continuing operations.
Rule: Changes in estimates affect only the current and subsequent periods (not prior periods and
not retained earnings).
Question CPA00083
The cumulative effect of a change in accounting estimate should be shown separately:
a. It should not be recorded separately on any financial statement.
Choice "a" is correct. A change in estimate is handled prospectively. No cumulative effect
adjustment is made and no separate line item presentation is made on any financial statement.
If a material change is being made, appropriate footnote disclosure is necessary.
Question CPA00088
During the current year, Krey Co. increased the estimated quantity of copper recoverable from its
mine. Krey uses the units of production depletion method. As a result of the change, which of the
following should be reported in Krey's yearend financial statements?
Cumulative effect of a change in accounting principle - No
Pro forma effects of retroactive application of new depletion base - No

Choice "c" is correct, No No. This is a change in "accounting estimate," which affects only the
current and subsequent periods (not prior periods and not retained earnings). "Cumulative effect
of a change in accounting principle" is only used for changes in "accounting principle."
Question CPA00090
On August 31, Year 1, Harvey Co. decided to change from the FIFO periodic inventory system to
the weighted average periodic inventory system. Harvey uses U.S. GAAP, is on a calendar year
basis, and does not present comparative financial statements. The cumulative effect of the
change is determined:
a. As of January 1, Year 1.
Choice "a" is correct, as of January 1, Year 1, the beginning of the year.
Rule: The cumulative effect of a change in accounting principle equals the difference between
retained earnings at the beginning of period of the change and what retained earnings would
have been if the change was applied to all affected prior periods, assuming comparative financial
statements are not presented. Beginning retained earnings of the earliest year presented is
adjusted for the cumulative effect of the change.
Question CPA00093
A segment of Ace Inc. was discontinued during Year 1. Ace's loss from discontinued operations
should not:
c. Exclude operating losses from the date the decision to dispose of the segment was made until
the end of Year 1. d. Include additional pension costs associated with the decision to
dispose.Explanation
Choice "c" is correct. Ace's loss on discontinued operations should include operating losses from
the date the decision to dispose of the segment was made until the end of Year 1. All Year 1
operating losses should be included.
Question CPA00096
On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan
to discontinue the operations of its Alpha division. The decision represents a major strategic shift
and will have a significant effect on its operations and financial results. Maxy estimated that
Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was
$300,000 less than their carrying amounts. Alpha's Year 1 operating loss was $1,400,000, and
the division was actually sold for $400,000 less than its carrying amount in Year 2. Maxy's
effective tax rate is 30%.
In its Year 1 income statement, what amount should Maxy report as loss from discontinued
operations?
Choice "b" is correct. Since the fair value of Alpha's facilities was $300,000 less than its carrying
value, there has been an impairment loss, and that loss should be recognized in Year 1. That
$300,000 impairment loss plus the $1,400,000 Year 1 operating loss would be recognized in Year
1 net of tax. The total loss would be
$1,700,000 x 70% (100% 30%) or $1,190,000. (Include estimate of disposal loss)
Question CPA00097
On December 31, Year 1, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan
to discontinue the operations of its Alpha division. The decision represents a major strategic shift
and will have a significant effect on its operations and financial results. Maxy estimated that
Alpha's Year 2 operating loss would be $500,000 and that the fair value of Alpha's facilities was
$300,000 less than their carrying amounts. The estimate for Year 2 turned out to be correct.
Alpha's Year 1 operating loss was $1,400,000, and the division was actually sold for $400,000
less than its carrying amount. Maxy's effective tax rate is 30%.
In its Year 2 income statement, what amount should Maxy report as loss from discontinued
operations?
Choice "c" is correct. The Year 2 loss from discontinued operations would include both the Year 2
operating loss of $500,000 (which turned out to be a correct estimate) and the "additional" loss
(on disposal) of $100,000, net of tax, for a total of $600,000 x 0.70 or $420,000.
Question CPA00098
Midway Co. had the following transactions during the current year:

$1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by
the foreign government.
$500,000 pretax loss from discontinued operations of a division.
$800,000 pretax loss on equipment damaged by a hurricane. This was the first hurricane ever to
strike in Midway's area. Midway also received $1,000,000 from its insurance company to replace
a building, with a carrying value of $300,000 that had been destroyed by the hurricane.
What amount should Midway report in its yearend income statement as extraordinary loss before
income taxes under U.S. GAAP?a.
c.
$100,000
Choice "c" is correct. Foreign currency devaluations and losses from discontinued operations are
not extraordinary items. The hurricane is an extraordinary item and the loss, net of insurance, is
$100,000:
Equipment loss
800,000
Building loss
300,000
Insurance proceeds
(1,000,000)
Hurricane loss
$100,000
Question CPA04692
In which of the following situations should a company report a priorperiod adjustment?
d. The correction of a mathematical error in the calculation of prior years' depreciation
Choice "d" is correct. An error correction is accounted for by adjusting prior period financial
statements to correct the error.
Question CPA05427
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with
its small appliance group. Operations and cash flows for this group can be clearly distinguished
from the rest of Envoy's operations. Envoy plans to sell the small appliance group with its
operations. What is the earliest point at which Envoy should report the small appliance group as
a discontinued operation?
When Envoy classifies it as held for sale.
Choice "b" is correct. The earliest period that a component of an entity can be reported in
discontinued operations is when the component meets the following "held for sale" criteria:
1. Management commits to a plan to sell the component.
2. The component is available for immediate sale in its present condition.
3. An active program to locate a buyer has been initiated.
4. The sale of the component is probable and the sale is expected to be completed within one
year.
5. The sale of the component is being actively marketed.
6. It is unlikely that significant change to the plan to sell will be made or that the plan will be
withdrawn.
Question CPA05697
How should a company report its decision to change from a cashbasis of accounting to accrualbasis of accounting?
d. As an error correction (net of tax), by adjusting the beginning balance of retained earnings.
Choice "d" is correct. A change from a nonGAAP/IFRS method to a GAAP/IFRS method is an error
correction that is accounted for by adjusting beginning retained earnings.
Question CPA05919
Which of the following describes the appropriate reporting treatment for a change in accounting
estimate?
c. In the period of change and future periods if the change affects both
Choice "c" is correct. A change in accounting estimate is accounted for prospectively, in current
and future periods.
Question CPA00031
Scott Corporation sold a fixed asset used for operations for greater than its carrying amount.
Scott should report the transaction in the income statement using the:
c. Net concept, showing the total gain as part of continuing operations, not net of income taxes.

Choice "c" is correct. The transaction resulted in a gain, which should be reported using the net
concept (i.e., proceeds less carrying amount). This gain resulted in the recognition of an asset
not in the ordinary course of business, but it did not qualify as an extraordinary item or as part of
discontinued operations.
Question CPA00018
In Yew Co.'s annual report, Yew described its social awareness expenditures during the year as
follows:
"The Company contributed $250,000 in cash to youth and educational programs. The Company
also gave $140,000 to health and humanservice organizations, of which $80,000 was contributed
by employees through payroll deductions. In addition, consistent with the Company's
commitment to the environment, the Company spent $100,000 to redesign product packaging."
What amount of the above should be included in Yew's income statement as charitable
contributions expense?
Choice "b" is correct. Charitable contributions include amounts the company gave to recognized
charities. This includes:Youth and education programs
$ 250,000+ ($140,000
$80,000)=60,000
Total $ 310,000Note: Of the $140,000, employees gave $80,000, and the company $60,000.
Redesigning packaging is not a contribution to a charity. Choice "a" is incorrect. The company
gave only $60,000 of the $140,000. Employees gave $80,000.
Question CPA05458
Under U.S. GAAP, an extraordinary gain should be reported as a direct increase to which of the
following?
a. Net income.
Choice "a" is correct. Under U.S. GAAP, extraordinary items are reported as a component of net
income, after income from continuing operations and discontinued operations. The reporting of
gains/losses as extraordinary is prohibited under IFRS.
Question CPA06065
Which of the following is a cost associated with exit and disposal activities?
d. Costs to relocate employees.
Choice "d" is correct. Costs to relocate employees are costs associated with exit and disposal
activities.
Question CPA06066
Which of the following is not a criteria for recognizing a liability associated with exit or disposal
activities?
1. An obligating event has occurred.
2. The event results in a present obligation to transfer assets or to provide services in the future.
3. The entity has little or no discretion to avoid the future transfer of assets or providing of
services.
Question CPA06067
On March 1 of the current year, the board of directors of Lockwood Inc. voted to discontinue the
operations of its fresh produce division, a reportable segment of the entity's operations. The sale
of the division, which was finalized on December 15, resulted in a gain of $150,000. The division
had operating losses of $500,000 during the current year and also paid employee termination
benefits of $200,000 and $20,000 to terminate an operating lease. Ignoring income taxes, what
is the loss from discontinued operations that Lockwood should recognize on its current year
income statement?
All include
Choice "d" is correct. The net loss from discontinued operations will include the gain from the
sale of the division, the operating loss, the employee termination benefits and the cost to
terminate the operating lease. Exit and disposal costs related to discontinued operations are
reported in discontinued operations on the income statement:Gain on sale
$ 150,000Operating loss
(500,000)Termination benefits

(200,000)Cost to terminate the lease

(20,000)
Loss on discontinued operations $ (570,000)
Question CPA06068
Adam Corp. uses IFRS and had the following infrequent transactions during Year 1:
A $190,000 gain on reacquisition and retirement of bonds. The material event is also considered
unusual for Adam Corp. A $260,000 gain on the disposal of a component of a business. Adam
continues similar operations at another location.
A $90,000 loss on the abandonment of equipment.
In its Year 1 income statement, what amount should Adam report as total infrequent net gains
that are not considered extraordinary?
Choice "a" is correct. IFRS prohibits the reporting of gains/losses as extraordinary. Therefore,
none of the infrequent items are extraordinary under IFRS:
Gain on reacquisition and retirement of bonds
$ 190,000
Gain on disposal of component
260,000
Loss on abandonment of equipment
(90,000)
Total
$ 360,000
Question CPA06069
On June 15 of the current year, Solid Co. decided to change from moving average inventory
system to the FIFO inventory system. Solid uses IFRS, is on a calendar year basis, and complies
with IFRS minimum comparative reporting requirements. The cumulative effect of the change is
shown as an adjustment to beginning retained earnings on the balance sheet for:
d. January 1 of the prior year.
Choice "d" is correct. Under IFRS, when an entity records a change in accounting principle, the
entity must (at a minimum) present 3 balance sheets (end of current period, end of prior period,
and beginning of prior period) and 2 of each other financial statement (current period and prior
period). The cumulative effect adjustment is shown as an adjustment to beginning retained
earnings on the balance sheet for the beginning of the prior period, which would be January 1 of
the prior year.
Question CPA06565
In Dart Co.'s Year 2 singlestep income statement, as prepared by Dart's controller, the section
titled "Revenues" consisted of the following:
Sales
$ 250,000
Purchase discounts
3,000
Recovery of accounts written off 10,000
In its Year 2 singlestep income statement, what amount should Dart report as total revenues?
b.
$250,000
Choice "b" is correct. The singlestep income statement will include in total revenues all sales of
goods, services, and rentals. Purchase discounts are not included in revenue, but instead reduce
cost of goods sold. The recovery of accounts written off does not hit the revenue account.
Question CPA06946
Which of the following transactions qualify as a discontinued operation?
a. Planned and approved sale of a segment.
Choice "a" is correct. The planned and approved sale of a segment qualifies as a discontinued
operation because a segment is a component of the entity. Segments may be functional in
nature, like a major product category or service division, or they can be geographical as well.
Additionally, to qualify as a discontinued operation, the sale must represent a strategic shift and
must have a significant effect on its operations and financial results. A discontinued operation
can also be a group of components, a business or a nonprofit activity.
Question CPA06955

A company decided to sell an unprofitable division of its business. The company can sell the
entire operation for $800,000, and the buyer will assume all assets and liabilities of the
operations. The tax rate is 30%. The assets and liabilities of the discontinued operation are as
follows:
Buildings
5,000,000
Accumulated depreciation
3,000,000
Mortgage on buildings
1,100,000
Inventory
500,000
Accounts payable
600,000
Accounts receivable
200,000
Net =
1,000,000
Sell for
- 800,000 (include all)
What is the aftertax net loss on the disposal of the division?
a.
$2,200,000
b.
$1,540,000
c.
$200,000
d.
$140,000
Explanation
Choice "d" is correct. The value of the assets is $2,000,000 building + 500,000 inventory +
200,000 AR, or $2,700,000. The value of the liabilities, which are to be assumed by the buyer, is
$1,100,000 mortgage + 600,000 AP, or $1,700,000. So the value of the net assets, or assets less
liabilities, is $1,000,000. The before tax loss from the sale is $200,000 ($800,000 sales price
$1,000,000 book value of division), and the aftertax loss is $140,000 [$200,000 x (1 30%)].
Choices "c", "b", and "a" are incorrect as per explanation above.
Question CPA06956
On January 1, year 1, Newport Corp. purchased a machine for $100,000. The machine was
depreciated using the straightline method over a 10year period with no residual value. Because
of a bookkeeping error, no depreciation was recognized in Newport's year 1 financial statements,
resulting in a $10,000 overstatement of the book value of the machine on December 31, year 1.
The oversight was discovered during the preparation of Newport's year 2 financial statements.
What amount should Newport report for depreciation expense on the machine in the year 2
financial statements?a. $10,000
b.
$9,000
c.
$20,000
d.
$11,000Explanation
Choice "a" is correct. This error should be corrected by restating the opening balance of retained
earnings by $10,000 for Year 2, if only Year 2 financial statements are being presented. If Year 1
financial statements are being presented, then they should be corrected to reflect the proper
Year 1 depreciation expense. In either case, this would have NO effect on the Year 2 depreciation
expense, which is $10,000.
Question CPA07055
Under IFRS, which of the following would be included in income from continuing operations on
the income statement?
(All)-------------I.
A large loss from a foreign currency transaction.
II. A union strike that shuts down operations for three months.
III. A foreign government takes possession of a company's only plant. (Extraordinary under
GAAP)
IV. Damage to a factory due to an earthquake in an area that had not previously experienced
earthquakes. (Extraordinary under GAAP)
Choice "d" is correct. Under IFRS, all of these items would be included in income from continuing
operations. Note that under U.S. GAAP, items III. and IV. would be classified as extraordinary
items. IFRS does not permit the reporting of extraordinary items.
Question CPA05078

Timber Co., was evaluating the likelihood of collecting various accounts receivable currently on
its books. This evaluation resulted in the decision to change from the direct recognition method
to the installment method for recognizing receivables. The accounting treatment for this change
is best characterized as:
a. Prospective
Choice "a" is correct. A change from direct recognition to the installment method is a change in
accounting principle inseparable from a change in accounting estimate that is treated like a
change in accounting estimate, prospectively.
Question CPA05068
Gusto Manufacturing changed its inventory costing method from lastin, firstout (LIFO) to firstin,
firstout (FIFO). Assuming there is adequate justification for the change, Gusto would:
Choice "a" is correct. The cumulative effect of a change in accounting principle is reported net of
tax as an adjustment to beginning retained earnings in the earliest year presented. The order of
presentation of income statement and retained earnings components is summarized using the
IDEA mnemonic as follows:
Question CPA07213
A transaction that is unusual in nature or infrequent in occurrence should be reported as a(an):
d. Component of income from continuing operations, but not net of applicable income taxes
Choice "d" is correct. Items of income or loss that are either unusual OR infrequent are not
extraordinary. These items should be reported as part of income from continuing operations and
not net of tax.
Question CPA08233
Cuthbert Industrials, Inc. prepares threeyear comparative financial statements. In Year 3,
Cuthbert discovered an error in the previously issued financial statements for Year 1. The error
affects the financial statements that were issued in Years 1 and 2. How should the company
report the error?
b. The financial statements for Years 1 and 2 should be restated the cumulative effect of the
error on Years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of
the beginning of Year 3.
Choice "b" is correct. Financial statements for Years 1 and 2 should be restated. The carrying
amounts of the assets and liabilities for these years will be corrected in each year's financial
statements and shown as restated in the three year comparative financial statements. As of the
beginning of Year 3, the cumulative effect of the error will have been corrected and reflected in
the carrying amounts of the affected assets and liabilities.
Question CPA08239
Which of the following statements is correct as it relates to changes in accounting estimates?
d. Whenever it is impossible to determine whether a change in accounting estimate or a change
in accounting principle has occurred, the change should be considered a change in estimate.
Choice "d" is correct. If a change in accounting estimate cannot be distinguished from a change
in accounting principle, the change is considered a change in accounting estimate treated as a
change in accounting principle and is accounted for prospectively.
Question CPA08244
A company recently moved to a new building. The old building is being actively marketed for
sale, and the company expects to complete the sale in four months. Each of the following
statements is correct regarding the old building, except:
.
b. It will be reclassified as an asset held for sale.
c. It will be classified as a current asset.
d. It will no longer be depreciated
valued at the lower of its book value or net realizable value
Question CPA08483

When there is a change in the reporting entity, how should the change be reported in the
financial statements?
c. Retrospectively, including note disclosures, and application to all prior period financial
statements presented.
Choice "c" is correct. If comparative financial statements are presented and a change of
reporting entity has occurred, all previous financial statements that are presented in the
comparative financial statements should be restated.
Question CPA08484
Under IFRS, each of the following is a disclosure requirement related to the correction of a
material prior period error, except:
a. The impact of the correction on basic and diluted earnings per share for each period
presented.
b. The nature of the error.
c. The amount of the correction at the beginning of the earliest period presented.
Choice "d" is correct. For a material prior period error, IFRS does not require a description of the
internet controls put in place to prevent the occurrence of the error in the future periods.
Question CPA08488
A company that issues quarterly financial statements incurs an extraordinary loss in one of the
first three quarters. In which of the following ways would the company report the extraordinary
loss?
Entirely in the quarter that the loss occurs.
Choice "c" is correct. An extraordinary loss is to be reported entirely in the quarter that the loss
occurs.
Question CPA08508
Althouse Co. discovered that equipment purchased on January 2 for $150,000 was incorrectly
expensed at the time. The equipment should have been depreciated over five years with no
salvage value. What amount, if any, should be adjusted to Althouse's depreciation expense at
January 2, the beginning of the third year, when the error was discovered?
Choice "c" is correct. The correct answer is $0. At the beginning of Year 3 when the error is
discovered, a prior period adjustment is needed. The prior period adjustment would not include
an increase to depreciation expense. The debit would be to retained earnings (net of income
taxes) and a credit to accumulated depreciation.
Question CPA00099
Rock Co.'s U.S. GAAP financial statements had the following balances at December 31:
Extraordinary gain
$50,000
Foreign currency translation gain, net of tax
100,000
Net income
400,000
Unrealized gain on availableforsale equity securities, net of tax
20,000
What amount should Rock report as comprehensive income for the year ended December 31?
a.
$400,000
b.
$570,000
c.
$520,000
d.
$420,000Explanation
Choice "c" is correct. Comprehensive Income includes all items included in "Net Income" plus
"Other Comprehensive Income" items. Since the $50,000 extraordinary gain is already included
in Net Income, Comprehensive Income is:
Net Income $400,000
"PUFE" adjustments:
Foreign currency translation adjustment
100,000
availableforsale adjustment
20,000
$520,000
Question CPA00101
According to the FASB conceptual framework, comprehensive income includes which of the
following?

Loss on discontinued operations - Yes

Investments by owners - No
Choice "a" is correct. Comprehensive income is the change in equity of a business during a
period from transactions and other events and circumstances from nonowner sources. It includes
all changes in equity except those resulting from investments by owners and distributions to
owners. SFAC 6 para 70.
Question CPA00102
One of the elements of a financial statement is comprehensive income. Comprehensive income
excludes changes in equity resulting from which of the following?
d. Dividends paid to stockholders
Choice "d" is correct. Comprehensive income includes all changes in equity during a period
except those resulting from owner investments and distributions to owners. Choice "c" is
incorrect. Loss from discontinued operations is included in net income, which is a component of
comprehensive income.
Question CPA05649
A company reports the following information as of December 31:
Sales revenue
$800,000
Cost of goods sold
600,000
Operating expenses
90,000
Unrealized holding gain on availableforsale securities, net of tax
30,000
What amount should the company report as comprehensive income as of December 31?
Include all
Choice "b" is correct. Comprehensive income is equal to current period net income plus current
period other comprehensive income. Sales revenue, cost of goods sold and operating expense
can be used to calculate net income:
Net income = Sales revenue Cost of goods sold Operating expenses
Net income = $800,000 $600,000 $90,000 = $110,000
The unrealized holding gain on availableforsale securities is not a component of net income, but
is included in other comprehensive income. Total comprehensive income is calculated as follows:
Comprehensive income = Net income + Other comprehensive income
Comprehensive income = $110,000 + $30,000 = $140,000
Question CPA05908
Which of the following items is not classified as "other comprehensive income?"
a. Unrealized gains for the year on availableforsale marketable securities.
b. Foreign currency translation adjustments.
c. Extraordinary gains from extinguishment of debt.
d. Minimum pension liability equity adjustment for a definedbenefit pension plan.
Choice "c" is correct. Extraordinary gains from extinguishment of debt are a component of net
income, not a component of other comprehensive income. Comprehensive income is the sum of
net income plus other comprehensive income. Other comprehensive income include changes in
the funded status of a pension plan, unrealized gains and losses on availableforsale securities,
foreign currency items and the effective portion of cash flow hedges.
Question CPA05929
Which of the following statements is correct regarding reporting comprehensive income?
d. Accumulated other comprehensive income is reported in the stockholders' equity section of
the balance sheet.
Choice "d" is correct. Accumulated other comprehensive income is a component of stockholders'
equity on the balance sheet.
Question CPA06070
A company that uses IFRS reports the following information as of December 31:
Pension gain $ 175,000Foreign currency translation loss

120,000Revaluation surplus from revaluation of fixed assets

50,000Unrealized gain on availableforsale security
32,000Unrealized loss on trading security
20,000Revaluation loss from revaluation of intangible assets
18,000What amount should the company report as other comprehensive income as of December
31?
a.
$137,000
b.
$17,000
c.
$55,000
d.
$99,000Explanation
Choice "a" is correct. The company's other comprehensive income includes the pension gain, the
foreign currency translation loss, the revaluation surplus and the unrealized gain on the available
for sale security:
Pension gain $ 175,000
Foreign currency translation loss (120,000)
Revaluation surplus
50,000
Unrealized gain on availableforsale security 32,000
Total other comprehensive income
$ 137,000
The unrealized loss on the trading security and the revaluation loss will be reported in net
income, not other comprehensive income, as of December 31.
Question CPA00232
Which of the following is true regarding the presentation of comprehensive income.
Must be shown on the face of the income statement - No
Related tax effects for components must be disclosed - Yes
Choice "b" is correct. No Yes. Comprehensive income may be shown on the face of a combined
"statement of income and comprehensive income" a separate section below net income, or:
1. In a separate "statement of comprehensive income," or
2. As a component of the "statement of changes of owners' equity" (U.S. GAAP only).
The income tax expense or benefit allocated to components must be disclosed, either on the
face of the statement or in notes to the statement. Choices "d", "c", and "a" are incorrect, per the
above rules.
Question CPA00233
Reclassification adjustments must be shown in the financial statement that discloses
comprehensive income:
d. To avoid double counting in comprehensive income items, which are currently displayed in net
income
Choice "d" is correct. Reclassification entries may be necessary to avoid double counting an item
previously reported as comprehensive income (i.e., unrealized gain), which are now reported as
part of net income (i.e., realized gain).
Question CPA06961
What is the purpose of reporting comprehensive income?
a. To summarize all changes in equity from nonowner sources.
Choice "a" is correct. Comprehensive income represents all changes in stockholders' equity that
come from nonowner sources. Therefore, comprehensive income includes all net income plus any
and all components of other comprehensive income, the PUFER items. However, comprehensive
income would not include investments by stockholders (owners) nor would it include distributions
or dividends to stockholders (owners).
Question CPA06962
Which of the following is a component of other comprehensive income?
b. Cumulative currencytranslation adjustments.
Choice "b" is correct. Cumulative currency translation adjustments are reported in other
comprehensive income. Choice
Question CPA07056

Riggs, Co. adopted IFRS two years ago and wants to report the following items on its financial
statements:
Pension net gain of $20,000
Unrealized gain on trading securities of $16,000
Foreign currency translation loss of $17,000
Gain from the effective portion of a cash flow hedge of $11,000
Revaluation gain of $5,000
The total for Other Comprehensive Income from the items above will be:
Choice "b" is correct. Under IFRS, other comprehensive income (OCI) includes all of the items
above except for the unrealized gain on trading securities. Unrealized gains and losses on
available for sale securities are included in OCI, but unrealized gains and losses on trading
securities are part of income from continuing operations.
Question CPA05079
The reporting of comprehensive income would include or display:
b. Net income.
Rule: Comprehensive income is the change in equity (net assets) of a business enterprise during
a period from transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from investments by owners
and distributions to owners. (buy/sale stocks NO)
Net Income
+ Other comprehensive income
Comprehensive income
Choice "b" is correct. Comprehensive income includes net income but excludes transactions with
owners such as dividends or stock purchases. Comprehensive income per share should not be
displayed.
Choices "c", "d", and "a" are incorrect, per the above explanation.
Question CPA08240
Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in
accounting principle, a $3,000 unrealized loss on availableforsale securities, a positive $2,000
foreign currency translation adjustment, and a $6,000 increase in its common stock. What
amount is Palmyra's comprehensive income?a.
$10,000
b.
$17,000
c.
$4,000
d.
$11,000Explanation
Choice "a" is correct. Palmyra's comprehensive income is $10,000, which is calculated as net
income of $11,000 less the $3,000 unrealized loss on availableforsale securities plus the positive
$2,000 foreign currency translation adjustment.
Choice "c" is incorrect. Items not included in the calculation of Palmyra's comprehensive income
will be the $1,000 net cumulative effect of a change in accounting principle and the $6,000
increase in common stock. These are not recognized as adjustments to net income in the
calculation of comprehensive income.
Question CPA08496
Accumulated other comprehensive income is reported in which of the following financial
statements?
a. The statement of financial position.
Choice "a" is correct. Accumulated other comprehensive income is a balance sheet account and
is reported in the statement of financial position.
Question CPA08498
A company reported the following information for Year 1:
Net income $34,000
Owner contribution 9,000
Deferred gain on an effective cashflow hedge 8,000
Foreign currency translation gain
2,000
Prior service cost not recognized in net periodic pension cost

5,000

What is the amount of other comprehensive income for Year 1?

a.
$5,000
b.
$14,000
c.
$43,000
d.
$15,000Explanation
Choice "a" is correct. Other comprehensive income for Year 1 is $5,000. ($8,000 + $2,000
$5,000). This includes the $8,000 of deferred gain on an effective cashflow hedge, plus $2,000 of
foreign currency translation gain, less the $5,000 of prior service cost not recognized in net
periodic pension cost. The $5,000 of prior service cost would be a positive addition to
comprehensive income in the year that it was amortized to net periodic pension cost. In this
problem, it is not being recognized in net periodic pension cost.
Question CPA00103
Which of the following information should be disclosed in the summary of significant accounting
policies?
a. Criteria for determining which investments are treated as cash equivalents.
Choice "a" is correct. The method of determining which assets are considered to be cash
equivalents is a significant accounting policy. Choice "d" is incorrect. Debt refinancing would be
disclosed in a separate indebtedness note.
Question CPA00104
What is the purpose of information presented in notes to the financial statements?
a. To provide disclosures required by GAAP generally accepted accounting principles. b. To
present management's responses to auditor comments.
c. To correct improper presentation in the financial statements.
d. To provide recognition of amounts not included in the totals of the financial
statements.Explanation
Choice "a" is correct. Information presented in notes to the financial statements have the
purpose of providing disclosures required by generally accepted accounting principles. SFAC 5
para. 7
Question CPA05189
Which of the following should be disclosed in a summary of significant accounting policies?
d. Basis of profit recognition on longterm construction contracts
Choice "d" is correct. The summary of significant accounting policies should disclose policies. The
only policy in this question is the "basis" of profit recognition on long term construction contracts.
The other disclosures are accounting details and would be disclosed in other footnotes, but not in
the summary of significant accounting policies.
Question CPA05210
Which of the following must be included in a company's summary of significant accounting
policies in the notes to the financial statements?
Revenue recognition policies
Choice "d" is correct. The summary of significant accounting policies should include "policies."
The only policy in the choices listed is the revenue recognition policies. Choice "a" is incorrect. A
description of current year equity transactions is not a policy. It should be disclosed somewhere
in the footnotes but not in the summary of significant accounting policies.
Question CPA05214
Which of the following is correct concerning financial statement disclosure of accounting policies?
d. Disclosure of accounting policies is an integral part of the financial statements.
Choice "d" is correct. Disclosure of accounting policies (and all other disclosure also) is an
integral part of the financial statements.
Question CPA00234
Dean Co. acquired 100% of Morey Corp. prior to Year 3. During Year 3, the individual companies
included in their financial statements the following:
What amount should be reported as related party disclosures in the notes to Dean's Year 3
consolidated financial statements?

Choice "a" is correct. The only related party transaction that would require disclosure (assuming
that all amounts are material to the financial statements) would be the loans to officers since
they are outside of the ordinary course of business. Inter company sales not needed
Choices "c", "d", and "b" are incorrect. Officers' salaries, officers' expenses and intercompany
sales (between entities included in a consolidated set of financial statements) are all transactions
in the ordinary course of business and generally would not require disclosure.
Question CPA06072
John Co. acquired 100% of George Corp. prior to Year 3. During Year 3, the individual companies
included in their financial statements the following:
John
George
What amount should be reported as related party disclosures in the notes to John's Year 3
consolidated financial statements under IFRS?
Choice "a" is correct. Under IFRS, loans to officers and key management compensation would
require disclosure:
Question CPA06073
Which of the following is not a disclosure requirement related to risks and uncertainties under
U.S. GAAP?
a. Disclosure of an entity's major products or services and its principle markets.
c. Disclosure of the use of estimates in the preparation of the financial statements.
d. Disclosure of concentrations when it is reasonably possible that a concentration could cause a
severe impact in the near term
Choice "b" is correct. Significant estimates should be disclosed when it is reasonably possible
(not probable) that the estimate will change in the near term and that the effect of the change
will be material. Immaterial items are not disclosed.
Question CPA05194
Dex Co. has entered into a joint venture with an affiliate to secure access to additional inventory.
Under the joint venture agreement, Dex will purchase the output of the venture at prices
negotiated on an arms'length basis. Which of the following is(are) required to be disclosed about
the related party transaction?
I.
The amount due to the affiliate at the balance sheet date. II. The dollar amount of the
purchases during the year.
Choice "b" is correct. For a related party transaction, both the amount due to the affiliate and the
dollar amount of the purchases during the year must be disclosed. In disclosure questions, if you
are not sure, disclose the most rather than the least.
Question CPA08234
A company has a 22% investment in another company that it accounts for using the equity
method. Which of the following disclosures should be included in the company's annual financial
statements?
a. The company's accounting policy for the investment.
b. Whether the investee company is involved in any litigation.
c. The reason for the company's decision to invest in the investee company.
d. The names and ownership percentages of the other stockholders in the investee
company.Explanation
Choice "a" is correct. A company owning a 22% investment in another company in which the
investment is accounted for using the equity method is considered as having "significant
influence" over the company and is required to disclose the company's accounting policy for the
investment.
Question CPA00105
Conceptually, interim financial statements can be described as emphasizing which of the
following enhancing qualitative characteristics?
a. Timeliness

Choice "a" is correct. Interim financial statements emphasize timeliness by providing financial
information based on actual performance to date and estimates prior to year end.
Question CPA00106
Interim financial reporting should be viewed primarily in which of the following ways?
a. As reporting for an integral part of an annual period.
Choice "a" is correct. Interim financial reporting should be viewed as reporting for an integral
part of an annual period.
Question CPA00107
For interim financial reporting, a company's income tax provision for the second quarter should
be determined using the:
c. Effective tax rate expected to be applicable for the full year as estimated at the end of the
second quarter.
Choice "c" is correct. The best, most current estimate of the annual effective tax rate should be
used to determine the income tax provision for the second quarter. This rate is the effective tax
rate expected to be applicable for the full year as estimated at the end of the second quarter.
Question CPA00109
During the first quarter of Year 2, Tech Co. had income before taxes of $200,000, and its effective
income tax rate was 15%. Tech's Year 1 effective annual income tax rate was 30%, but Tech
expects its Year 2 effective annual income tax rate to be 25%. In its first quarter interim income
statement, what amount of income tax expense should Tech report?
Choice "c" is correct. Interim period tax expense is the estimated annual effective tax rate (25%
in this case) applied to the yeartodate income before taxes minus the tax expense recognized in
previous interim periods. Since this question involves the first quarter, there are no previous
interim periods. 25% x $200,000 = $50,000.
Question CPA00110
Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The
market price is expected to return to previous levels by the end of the year. At the end of the
year the decline had not reversed. When should the loss be reported in Petal's interim income
statements?
a. In the fourth quarter only.
Choice "a" is correct. When the loss is probable and estimable, the expected loss must be
recorded in full. This loss becomes such at the end of the fourth quarter. Therefore, the inventory
must be valued on the yearend at the lower of cost or market, recognizing the loss at that time.
Question CPA04662
In general, an enterprise preparing interim financial statements should:
c. Use the same accounting principles followed in preparing its latest annual financial
statements.
Choice "c" is correct. Generally accepted accounting principles that were used in the most recent
annual report of an enterprise should be applied to interim financial statements of the current
year, unless a change in accounting principle is adopted in the current year.
Question CPA05921
A corporation issues quarterly interim financial statements and uses the lower cost or market
method to value its inventory in its annual financial statements. Which of the following
statements is correct regarding how the corporation should value its inventory in its interim
financial statements?
Choice "a" is incorrect. Temporary declines in market value that are expected to reverse by the
end of the annual period are not recognized in the interim statements. Only permanent declines
are recognized.
Choice "d" is incorrect. The lower of cost or market method should be applied to interim periods.
Choice "b" is incorrect. Temporary declines in market value, and subsequent reversals of those
declines, are not recognized in interim statements.

Question CPA05946
On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar
year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The
repairs will benefit operations for the remainder of the calendar year. What amount of these
expenses should Tree include in its third quarter interim financial statements for the three
months ended September 30?a. $95,000
b.
$75,000
c.
$15,000
d.
$0Explanation
Choice "a" is correct. For interim reporting purposes, costs that benefit multiple periods should
be allocated equally to those periods. The $60,000 in property taxes will benefit the entire
calendar year and therefore must be allocated equally to each calendar quarter:
$60,000 / 4 quarters = $15,000 per quarter
The $240,000 in equipment repairs will benefit the company from April December and therefore
should be allocated equally to each the three quarters contained in that period:
$240,000 / 3 quarters = $80,000 per quarter
Therefore, the total of these expenses to be recognized in the quarter ended September 30 is
$95,000 ($15,000 allocated property taxes + $80,000 allocated equipment repairs).
Question CPA06583
Bard Co., a calendaryear corporation, reported income before income tax expense of $10,000
and income tax expense of $1,500 in its interim income statement for the first quarter of the
year. Bard had income before income tax expense of $20,000 for the second quarter and an
estimated effective annual rate of 25%. What amount should Bard report as income tax expense
in its interim income statement for the second quarter?
Income of 1st & 2nd quarter * effective rate
Choice "c" is correct. In order to calculate income tax expense on an interim statement, the
appropriate methodology is to multiply year to date income by the effective tax rate and subtract
from that the income tax expense recorded in the previous quarter. The total income for both
quarters is $30,000 and the effective tax rate estimated as
of the second quarter is 25%. Total tax expense is then estimated as $7,500 for both quarters,
and with $1,500 already booked in the first quarter, that will leave $6,000 for the second quarter.
Question CPA06609
How are discontinued operations and extraordinary items that occur at midyear initially
reported?
a. Included in net income and disclosed in the notes to interim financial statements. b. Disclosed
only in the notes to interim financial statements.
c. Included in net income and disclosed in the notes to the yearend financial statements. d.
Disclosed only in the notes to the yearend financial statements.Explanation
Choice "a" is correct. To adequately capture the impact of discountinued operations and
extraordinary items, both should be included (prorated) in net income and disclosed in the
interim financial statement notes.
Question CPA00124
What information should a public company present about revenues from its reporting segments?
a. Disclose separately the amount of sales to unaffiliated customers and the amount of
intracompany sales.
b. Disclose separately the amount of sales to unaffiliated customers but not the amount of
intracompany sales between geographic areas. c. Disclose as a combined amount sales to
unaffiliated customers and intracompany sales between geographic areas.
d. No disclosure of revenues from foreign operations need be reported.Explanation
Choice "a" is correct. Unaffiliated customers sales and intracompany sales must be disclosed
separately.
Question CPA00126
In financial reporting of segment data, which of the following items is always used in determining
a segment's operating income?
a. Income tax expense.

b. Gain or loss on discontinued operations. c. Sales to other segments.

d. General corporate expense.Explanation
Choice "c" is correct. Sales to other segments would be used in determining a segment's
operating income.
Rule: Equity in net income of another company, general corporate expenses, interest, income tax
expense, and gains or losses on discontinued operations are all not included in segment profit
unless they are included in the determination of segment profit reported to the "Chief Operating
Decision Maker."
Question CPA04666
Opto Co. is a publiclytraded, consolidated enterprise reporting segment information. Which of the
following items is a required enterprisewide disclosure regarding external customers?
a. The identity of any external customer considered to be "major" by management.
b. The fact that transactions with a particular external customer constitute more than 10% of the
total enterprise revenues. c. The identity of any external customer providing 10% or more of a
particular operating segment's revenue.
d. Information on major customers is not required in segment reporting.Explanation
Choice "b" is correct. In order to conform to GAAP, financial statements for public business
enterprises must report segment information about a company's major customers if that
customer provides 10% or more of the combined revenue, internal and external, of all operating
segments.
Question CPA04689
Which of the following qualifies as a reportable segment?
a. South American segment, whose results of operations are reported directly to the chief
operating officer, and has 5% of the company's assets, 9% of revenues, and
8% of the profits.
b. Corporate headquarters, which oversees $1 billion in sales for the entire company.
c. North American segment, whose assets are 12% of the company's assets of all segments, and
management reports to the chief operating officer.
d. Eastern Europe segment, which reports its results directly to the manager of the European
division, and has 20% of the company's assets, 12% of revenues, and
11% of profits.Explanation
Choice "c" is correct. Assets of the North American segment exceed 10% combined assets of all
operating segments. Choice "b" is incorrect. Corporate headquarters is not considered a
segment.
Choice "a" is incorrect. The South American segment does not meet any of the 10% minimums
(Revenue, P&L or Assets). Choice "d" is incorrect. Eastern Europe segment does not report to the
chief operating officer.
Question CPA05196
Which of the following should be disclosed for each reportable operating segment of an
enterprise under U.S. GAAP?
Profit or loss-yes
Total assets-yes
Question CPA05217
Which of the following factors determines whether an identified segment of an enterprise should
be reported in the enterprise's financial statements?
I.
The segment's assets constitute more than 10% of the combined assets of all operating. Yes
II. The segment's liabilities constitute more than 10% of the combined liabilities of all operating
segments. - No
a. I only.
b. Both I and II.
c. Neither I nor II. d. II only.Explanation
Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more
than 10% of the combined assets of all operating segments, the segment should be reported.

The same rule does not apply for the segment's liabilities. The candidate does have to remember
the 10% and also the 10% of "what."
Question CPA05439
Which of the following types of entities are required to report on business segments?
a. Publiclytraded enterprises.
b. Notforprofit enterprises.
c. Joint ventures.
d. Nonpublic business enterprises.Explanation
Choice "a" is correct. Only publiclytraded enterprises are required to report on business
segments. Choices "d", "b", and "c" are incorrect, per the explanation above.
Question CPA05447
In financial reporting of segment data, which of the following must be considered in determining
if an industry segment is a reportable segment?
Sales to unaffiliated customers - Yes
Intersegment sales - Yes
Choice "a" is correct. A segment is considered reportable if its reported revenue, including sales
to unaffiliated customers and intersegment sales, is 10% or more of the combined revenue
(unaffiliated and intersegment) of all operating segments.
Question CPA06074
Under IFRS, which of the following is not disclosed for an entity's reportable segments?
a. Segment profit or loss. b. No cash flow.
c. Segment liabilities. d. Segment assets
Choice "b" is correct. Segment cash flow is not reported under IFRS (or U.S. GAAP).
Question CPA06078
Which form is not required to include audited financial statements?
a. Form 6K. b. Form 20F. c. Form 10K. d. Form 40F.Explanation
Form 6K &. Form 10Q, which is filed quarterly by U.S. registered companies, also contains
unaudited financial
Question CPA06080
Under Regulation SX, an entity's annual financial statements filed with the SEC should include, at
a minimum, two:
a. Statements of changes in owners' equity. b. Income statements.
c. Balance sheets.
d. Statements of cash flows.Explanation
Choice "c" is correct. Under Regulation SX, an entity's audited financial statements filed with the
SEC should include balance sheets for the two most recent fiscal years and the statements of
income, changes in owners' equity, and cash flows for the three fiscal years preceding the date
of the most recent audited balance sheet.
Question CPA06618
A company is an accelerated filer that is required to file Form 10K with the United States
Securities and Exchange Commission (SEC). What is the maximum number of days after the
company's fiscal year end that the company has to file Form 10K with the SEC?
a. 120 days. b. 90 days. c. 60 days. d. 75 days.Explanation
Choice "d" is correct. In 2002, the SEC approved a deadline of Form 10K "accelerated filers." An
accelerated filer is an issuer:
With a public float of greater than or equal to $75 million - accelerated filers 75 Days
Subject to the Securities Exchange Act's reporting requirements for greater than or equal to 12
months, That previously filed at least 1 report,
Which is not eligible to file quarterly and annual reports on Forms 10QSB and 10KSB.
This is the correct filing period for "large accelerated filers" (those with floats over $700 million).
-60 Days
Choice "b" is incorrect. This is the time period for nonaccelerated filers. 90 days
Choice "a" is incorrect. This answer is not applicable.

Question CPA06619
A company is required to file quarterly financial statements with the United States Securities and
Exchange Commission on Form 10Q. The company operates in an industry that is not subject to
seasonal fluctuations that could have a significant impact on its financial condition. In addition to
the most recent quarter end, for which of the following periods is the company required to
present balance sheets on Form 10Q?
a. The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the
preceding fiscal year. b. The end of the corresponding fiscal quarter of the preceding fiscal year.
c. The end of preceding fiscal year.
d. The end of the preceding fiscal year and the end of the prior two fiscal years.Explanation
Choice "c" is correct. Due to the absence of seasonal fluctuations, the end of the preceding fiscal
year is the appropriate period to include in addition to the most recent quarter end.
Question CPA06807
An XBRL financial statement exhibit is required to be submitted with all of the following SEC
filings, except:
a. Form 10K.
b. Form 20F.
c. Form 6K.
Explanation
Choice "c" is correct. Forms 3, 4, and 5 are required to be filed by directors, officers, or beneficial
owners of more than 10 percent of a class of equity securities of a registered company. These
forms do not contain the registered company's financial statements because they are not filed by
the company, and therefore are not required to present the company's financial statements in an
exhibit prepared using XBRL.
Choices "a", "b", and "d" are incorrect. An XBRL financial statement exhibit is required to be
submitted with a filer's 10K, 20F, or 6K because these filings include the filer's financial
statements.
Question CPA06808
Which of the following items in not required to be presented in an exhibit prepared using XBRL
when a filer submits Form 10K to the SEC?
a. Statement of comprehensive income.
b. Summary of significant accounting policies.
c. Management's discussion and analysis.
d. Balance sheet
Choice "c" is correct. The MD&A is not required to be presented in an exhibit prepared using
XBRL. The SEC's Interactive Data Rule requires a U.S. public company submitting a Form 10K to
present financial statements, including the balance sheet, statement of comprehensive income,
and all footnotes, and any applicable financial statement schedules, in an exhibit prepared using
XBRL.
Question CPA06079
Under Regulation SX, an entity's interim financial statements filed with the SEC should include all
of the following, except:
a. An income statement for the cumulative 12 month period ending during the most recent fiscal
quarter.
c. A balance sheet as of the end of the preceding fiscal year.
d. An income statement for the period between the end of the preceding fiscal year and the end
of the most recent fiscal quarter.
Choice "b" is correct. Interim financial statements filed with the SEC would not include a
statement of cash flows for the most recent fiscal quarter, but should include statements of cash
flows for the period between the end of the preceding fiscal year and the end of the most recent
fiscal quarter, and for the corresponding period for the preceding fiscal year. The financial
statements may also present statements of cash flows for the cumulative 12 month period ended
during the most recent fiscal quarter and for the corresponding preceding period.

Choice "c" is incorrect. Interim financial statements filed with the SEC should contain balance
sheets as of the end of the most recent fiscal quarter and as of the end of the preceding fiscal
year. A balance sheet for the corresponding fiscal quarter for the preceding fiscal year is not
required unless necessary to understand the impact of seasonal fluctuations.
Choice "d" is incorrect. Interim financial statements filed with the SEC should contain income
statements for the most recent fiscal quarter, for the period between the end of the preceding
fiscal year and the end of the most recent fiscal quarter, and for the corresponding periods of the
preceding fiscal year. The financial statements may also include income statements for the
cumulative 12 month period ended during the most recent fiscal quarter and for the
corresponding preceding period.
Choice "a" is incorrect. Interim financial statements filed with the SEC should contain income
statements for the most recent fiscal quarter, for the period between the end of the preceding
fiscal year and the end of the most recent fiscal quarter, and for the corresponding periods of the
preceding fiscal year. The financial statements may also include income statements for the
cumulative 12 month period ended during the most recent fiscal quarter and for the
corresponding preceding period.
Question CPA06809
An entity has modified liability for its interactive data (XBRL) exhibits for a period:
Choice "c" is correct. XBRL exhibits submitted to the SEC are subject to modified liability for 24
months from the time the filer first is required to submit interactive data files. The modified
liability provision will terminate completely on October 31, 2014, but will end sooner than this
date for most entities.
Question CPA06077
Which of the following SEC filings would not include a set of financial statements?
Choice "c" is correct. Form 3,4 ,5 is required to be filed by directors, officers, or beneficial owners
of a class of equity securities of a registered company and would not contain financial
statements. This form contains information regarding the filer's ownership of the entity's
securities.
Choice "d" is incorrect. Form 10K is the annual report of a U.S. registered company and would
contain financial statements. Choice "a" is incorrect. Form 20F is the annual report of nonU.S.
registrant and would contain financial statements.
Choice "b" is incorrect. Form 11K is the annual report of an entity's employee benefit plan and
would include the financial statements of the benefit plan.
Question CPA07215
A company that is a large accelerated filer must file its Form 10Q with the United States
Securities and Exchange Commission within how many days after the end of the period?
a. 60 days. b. 30 days. c. 45 days. d. 40 days.Explanation
Choice "d" is correct. Form 10Q is a quarterly report filed within 40 days for large corporations
and 45 days for small corporations after the end of the first three quarters of each fiscal year. It
must contain reviews of interim financial information by an independent CPA.
Choice "b" is incorrect. There is no 30 day requirement. Form 10Q is due 40 days after the end of
the quarter for large corporations. Choice "c" is incorrect. Form 10Q is due 45 days after the end
of the quarter for small corporations.
Choice "a" is incorrect. Form 10K, an annual report, is due 60 days after the end of the fiscal year
for large corporations.