CPA Exam Preparation Exam Preparation Guide
Course Introduction
This course is designed to prepare students for successful completion of the Certified Public Accountant (CPA) examination. Covering key topics tested in the four sections of the CPA exam Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG) the course combines comprehensive content reviews with exam-taking strategies and practice questions. Emphasis is placed on understanding complex accounting principles, developing analytical problem-solving skills, and familiarizing students with the format and structure of the exam. Through lectures, discussions, practice exams, and assignments, students will build the confidence and knowledge necessary to achieve CPA certification.
Recommended Textbook
Advanced Accounting 13th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) Firms should conduct an impairment test for goodwill at least quarterly.
A)True
B)False
Answer: False
Q2) Historically,much of the controversy concerning accounting requirements for business combinations involved the ________ method.
A)purchase
B)pooling of interests
C)equity
D)acquisition Answer: B
Q3) Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?
A)Senior executive's estimates
B)Financial analyst forecasts
C)Fair value
D)The present value of future cash flows discounted at the firm's cost of capital Answer: C
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Which method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company?
A)Only the fair value method may be used.
B)Only the equity method may be used.
C)Either the fair value method or the equity method may be used,depending upon the relationship between the companies.
D)Only the acquisition method.
Answer: C
Q2) Griffon Incorporated holds a 30% ownership in Duck Corporation.Griffon should use the equity method under which of the following circumstances?
A)Griffon has surrendered significant stockholder rights by agreement between Griffon and Duck.
B)Griffon has been unable to secure a position on the Duck Corporation's Board of Directors.
C)Griffon has inadequate or untimely information to apply the equity method.
D)The ownership of Duck Corporation is diverse.
Answer: D
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Push-down accounting is the process of recording the effects of the acquisition price assignment directly on the books of the parent company.
A)True
B)False
Answer: False
Q2) When a parent acquires 100% of a subsidiary at book value the consolidated balance sheet eliminates reciprocal accounts and combines nonrecirpocal accounts.
A)True
B)False
Answer: True
Q3) When the fiscal periods of the parent and its subsidiaries differ,we prepare consolidated statements for and as of the end of both the parent's and the subsidiary's fiscal period.
A)True
B)False
Answer: False
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Chapter 4: Consolidated Techniques and Procedures
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Q1) The depreciation on buildings is presented under investing activities on the consolidated cash flow statement.
A)True
B)False
Q2) The GAAP only authorizes the use of the indirect method for preparation of the consolidated cash flow statement.
A)True
B)False
Q3) The trial balance approach to consolidation workpapers brings together the adjusted trial balances for affiliated companies.
A)True
B)False
Q4) On consolidated working papers,a subsidiary's net income is
A)deducted from beginning consolidated retained earnings.
B)deducted from ending consolidated retained earnings.
C)allocated between the noncontrolling interest share and the parent's share.
D)only an entry in the parent company's general ledger.
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6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) If the intercompany sale was an upstream sale,the total amount of consolidated cost of goods sold for 2015 will be
A)$300,000.
B)$430,000.
C)$470,000.
D)$477,000.
Q2) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
Q3) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2014 will show consolidated cost of sales of A)$120,000.
B)$136,000.
C)$148,000.
D)$210,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Paula's Pizzas purchased 80% of their supplier,Sarah's Sauces.Sarah's book values equaled fair values at the time of the acquisition.Paula sold Sarah some packaging equipment on January 2,2013 for $100,000.The equipment had a carrying value of $90,000,and original cost of $120,000,and had a remaining life of 10 years.Both Paula and Sarah depreciate their assets on the straight-line method.The equipment has no salvage value.
Required: Prepare the following entries:
1.Journal entries Paula and Sarah will prepare on their separate books in 2013.
2.Eliminating/adjusting entries on the consolidation worksheet at the end of 2013.
3.Eliminating/adjusting entries on the consolidation worksheet at the end of 2014.
Q2) An elimination entry at December 31,2014 for the intercompany sale will include a
A)credit of $6,000 to Depreciation Expense.
B)credit of $6,000 to Accumulated Depreciation.
C)credit of $6,000 to Equipment.
D)credit of $6,000 to Gain on Sale of Equipment.
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8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Paleo Corporation holds 80% of the capital stock of Sockrite Company.On January 1,2013,Sockrite purchased $50,000 par value,10% bonds on the open market that had been issued by Paleo on January 1,2011.Sockrite paid $58,000 for these bonds which had originally been issued by Paleo for $53,000,with a 10-year maturity from the date of issue.Interest is paid annually on December 31.Straight-line amortization is used by both companies.
Required:
1.Calculate the interest income reported by Sockrite related to these bonds in 2013.
2.Calculate the interest expense reported by Paleo related to these bonds in 2013.
3.Calculate the gain or loss on retirement of bonds payable to be reported on consolidated financial statements in 2013.
Q2) The fair value option for liabilities permits recognition of gains and losses due to changes in the market values.
A)True
B)False
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) On January 1,2013,Starling Corporation held an 80% interest in Twig Corporation and the investment account balance was $900,000.On January 1,2013,Twig's total stockholders' equity was $1,125,000.
During 2013,Twig uniformly earned $234,000 and paid dividends of $37,500 on April 1 and again on October 1.On August 1,2013,Starling sold 30% of its investment in Twig for $262,500,thereby reducing its interest in Twig to 56%.
Required: Compute the following using the actual sales date assumption: 1.Gain or loss on sale.
2.Income from Twig for 2013.
3.Noncontrolling interest share for 2013.
Q2) What is Goldberg's percentage ownership in Savannah after Savannah issues its stock to Goldberg?
A)76.32%
B)80.43%
C)82.57%
D)83.43%
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Chapter 9: Indirect and Mutual Holdings
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Q1) The amount of noncontrolling interest share for the current year is
A)$69,000.
B)$85,000.
C)$95,000.
D)$99,000.
Q2) Noncontrolling interest share for Badrack is
A)$9,000.
B)$10,000.
C)$20,000.
D)$40,000.
Q3) The equation,in a set of simultaneous equations,that computes Paiva Corporation income on a consolidated basis is
A)P = $50,000 + 0.8B.
B)P = $30,000 + 0.2A.
C)P = $100,000 + 0.2A.
D)P = $100,000 + 0.8A.
Q4) Direct holdings result from direct investments in the voting stock of one or more investees.
A)True
B)False
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Pan Corporation has total stockholders' equity of $5,000,000 consisting of $1,000,000 of $10 par value Common Stock,$1,000,000 of Additional Paid-in Capital,and $3,000,000 of Retained Earnings.Pan owns 80% of Sailor Corporation's common stock purchased at book value,which equals fair value.Sailor has $900,000 of 10% cumulative preferred stock outstanding,with no preferred dividends in arrears.The preferred stock has no call price,redemption price or liquidation price.Pan acquired 60% of the preferred stock of Sailor for $500,000.After this transaction the balances in Pan's Retained Earnings and Additional Paid-in Capital accounts,respectively,are
A)$2,960,000 and $1,000,000.
B)$3,000,000 and $960,000.
C)$3,000,000 and $1,040,000.
D)$3,040,000 and $1,000,000.
Q2) The parent company's retained earnings are reduced when additional paid-in capital is insufficient to absorb an excess of purchase price over book value of the subsidiary's preferred stock.
A)True
B)False
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Noncontrolling interest share was reported in the 2014 consolidated income statement at
A)$5,000.
B)$6,000.
C)$8,000.
D)$10,000.
Q2) Anthony and Cleopatra create a joint venture to distribute artifacts.Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company.How would Anthony report information about Cleopatra on Anthony's financial statements?
A)Not at all
B)In a footnote
C)As a liability
D)As a noncontrolling interest
Q3) Under the entity theory,subsidiary assets and liabilities are consolidated at fair values and controlling and noncontrolling interests in the net assets are accounted for consistently.
A)True
B)False
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) A put option requires the seller to buy an asset at market price and the buyer of the put option has the option to sell the asset at market.
A)True
B)False
Q2) The common characteristic of derivatives is the contract's value to the investor has a direct relationship to fluctuations in price,rate and other variables.
A)True
B)False
Q3) What exchange gain or loss appeared on Sooty's 2014 income statement?
A)a loss of $10,000
B)a loss of $15,000
C)a gain of $10,000
D)a gain of $15,000
Q4) Floating exchange rates reflect fluctuating market prices for a currency based on supply and demand in the world currency markets.
A)True
B)False
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on December 31?
A)$160 asset
B)$160 liability
C)$140 asset
D)$140 liability
Q2) A fair value hedge differs from a cash flow hedge because a fair value hedge
A)cannot be used for firm purchase or sales commitments.
B)is not recorded unless it is a highly-effective hedge.
C)records gains or losses in the value of the derivative directly to earnings of the company.
D)defers the gains or losses in the value of the derivative using Other Comprehensive Income.
Q3) The purchase price of an option contract is typically recorded as
A)an expense.
B)an asset.
C)an amortized cost.
D)a component of shareholders equity.
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Chapter 14: Foreign Currency Financial Statements
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Q1) The GAAP permits two methods for converting the foreign subsidiary's financial statements into U.S.dollars: temporal method and the fixed rate method.
A)True
B)False
Q2) Gains and losses from foreign currency transactions which are designated as economic hedges of a net investment in a foreign subsidiary are recorded as translation adjustments of stockholder's equity.
A)True
B)False
Q3) Which of the following assets and/or liabilities are considered monetary?
A)Intangible Assets and Plant,Property,and Equipment
B)Bonds Payable and Common Stock
C)Cash and Accounts Payable
D)Notes Receivable and Inventories carried at cost
Q4) Intercompany transactions that produce receivable balances denominated in a currency other than the entity's functional currency are intercompany transactions.
A)True
B)False
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Which one of the following operating segment information items is not directly named by GAAP to be reconciled to consolidated totals?
A)Assets
B)Liabilities
C)Revenues
D)Profit or loss
Q2) The gross profit method for estimating inventory and cost of goods sold can be used for interim financial reports if the periodic inventory method is not used and it is too costly to perform an inventory count.
A)True
B)False
Q3) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A)They have similar amounts of intersegment revenues or expenses.
B)They have a similar distribution method for products.
C)They have similar production processes.
D)They have similar products or services.
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Under a partnership,each partner has mutual agency and limited liability.
A)True
B)False
Q2) The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income,after deduction of the bonus.If the partnership's income is $140,000,how much is Partner Y's bonus allocation?
A)$12,727
B)$13,860
C)$14,000
D)$15,400
Q3) A partner assigned his partnership interest to a third party.Which statement best describes the legal ramifications to the assignee?
A)The assignment of the partnership interest does not entitle the assignee to partnership assets upon a liquidation.
B)The assignment dissolves the partnership.
C)The assignee has the right to share in the management of the partnership.
D)The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.
Page 18
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Chapter 17: Partnership Liquidation
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Q1) The book value of the partnership equity (i.e.,total equity of the partners)on June 30,2014 is
A)$ 58,000.
B)$ 60,000.
C)$ 84,000.
D)$120,000.
Q2) A partnership is considered insolvent if the cash available after all noncash assets have been converted into cash is not enough to pay partnership creditors.
A)True
B)False
Q3) The liquidation of a partnership is covered under Section 807 of the Uniform Partnership Act of 1997.
A)True
B)False
Q4) If a partner has a debit capital balance at the time of liquidation,the partner may be required to use their personal funds to settle their partnership obligations.
A)True
B)False
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A primary difference between voluntary and involuntary bankruptcy petitions is that
A)creditors file the petition in an involuntary filing.
B)trustees are not used in a voluntary filing.
C)voluntary petitions are not subject to review by the bankruptcy court.
D)the debtor corporation files the petition in an involuntary filing.
Q2) Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?
A)Gains and losses on the sale of assets are debited to the estate equity account.
B)Unrecorded liabilities discovered by the trustee are debited to the estate equity account and credited to the liability account.
C)Liquidation expenses are debited to the estate equity account.
D)An income statement is prepared showing gains and losses on sale of assets.
Q3) A statement of realization and liquidation is an activity statement that shows progress toward the liquidation of a debtor's estate.
A)True
B)False
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Centralized data processing,central motor pools and garages,centralized risk-financing activities,and central stores typically would be accounted for using what type of fund?
A)An agency fund
B)An enterprise fund
C)An internal service fund
D)A trust fund
Q2) When examining revenue transactions,which of the following transactions is classified as an exchange transaction?
A)When a homeowner pays property taxes
B)When a university receives a federal grant that mandates a certain type of research activity
C)When an aquatic center receives cash for a group swim
D)When an employer deducts money for state tax withholding
Q3) For government transactions derived tax revenues are recognized when resources should be available when using accrual accounting.
A)True
B)False
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Bounty County had the following transactions in 2014.
1.The budget for the county was approved,showing estimated revenues of $320,000 from local income taxes,and total estimated expenditures of $316,000.
2.Tax bills were mailed amounting to $326,000,which are due in 60 days.All but 2% was expected to be collectible.
3.Taxes collected prior to the due date amounted to $260,800.The balance was delinquent.
4.$4,200 of taxes due were determined to be uncollectible and written off.
5.The year-end books were closed,with the expectation that the remaining taxes due would be collected evenly over the first two months after the fiscal year end.
Required:
Prepare the journal entries for the General Fund for the transactions.
Q2) Normal practice for governmental accounting is to record expenditures when the related fund liability is incurred under a modified accrual basis.
A)True
B)False
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Chapter 21: Accounting
for State and Local Governmental Units - Proprietary and Fiduciary Funds
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Q1) On January 1,2014,the General Fund contributes $200,000 cash to the Internal Service Fund.On January 1,2014,the General Fund also loans $100,000 cash to the Internal Service Fund.On January 1,2014,what journal entry does the Internal Service Fund prepare?
A)debit Cash $300,000,credit Other Financing Sources $300,000
B)debit Cash $300,000,credit Other Financing Sources $200,000,credit Advance from General Fund $100,000
C)debit Cash $300,000,credit Advance from General Fund $300,000
D)debit Cash $300,000,credit Contributed Capital $200,000,credit Advance from General Fund $100,000
Q2) The financial statements of proprietary funds are similar to business enterprises with the exception that proprietary funds do not
A)report fixed assets.
B)report property taxes.
C)separate current and noncurrent assets.
D)report noncurrent liabilities.
Q3) Enterprise funds use full accrual accounting procedures. A)True B)False
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Colleges and universities maintain accounts and reports on a modified-accrual basis.
A)True B)False
Q2) A private,not-for-profit university received donations of $800,000 in 2014 that were restricted to capital improvements of the football stadium.The university spent $670,000 on capital improvements for the stadium in 2014 and recorded depreciation of $130,000. In 2014,an alumnus contributed a $1,500,000 endowment for football scholarships with all endowment income restricted for that purpose.Endowment income totaled $75,000 for the year and scholarship awards were $68,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
Q3) Not-for-profit health care organizations present a statement of financial position,a statement of operations,a statement of changes in net assets,and a statement of cash flows.
A)True B)False
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Chapter 23: Estates and Trusts
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Q1) In reference to the Uniform Probate Code,which of the following statements is correct?
A)The Code entitles the surviving spouse to a homestead allowance that is exempt from,and has priority over,all claims against the estate.
B)The Code provides a homestead allowance to the surviving spouse of $100,000.
C)The Code provides an allowance for dependents,after other claims have been settled.
D)The Code entitles the surviving spouse to claim 100% of the estate after claims to third-parties are settled.
Q2) Within four months of appointment,the executor is required to prepare and file an inventory of property owned by the deceased.
A)True
B)False
Q3) Receipts due but unpaid at the date of death are a part of the estate principal when accounting for a decedent's estate.
A)True
B)False
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