CPA Exam Preparation Exam Preparation Guide
Course Introduction
This course is designed to comprehensively prepare students for the Certified Public Accountant (CPA) exam, covering all four exam sections: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). Through an integrated approach of lectures, practice questions, simulations, and study strategies, students will strengthen their understanding of key accounting principles, tax regulations, business law, audit procedures, and ethics. Emphasis is placed on mastering analytical problem-solving skills, time management, and effective test-taking techniques, ensuring students are well-equipped to achieve success on the CPA exam and embark on professional accounting careers.
Recommended Textbook
Advanced Accounting 6th Edition by Debra C. Jeter
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19 Chapters
671 Verified Questions
671 Flashcards
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Chapter 1: Introduction to Business Combinations and the
Conceptual Framework
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Q1) When following the economic unit concept in the preparation of consolidated financial statements,the basis for valuing the noncontrolling interest in net assets is the:
A)book values of subsidiary assets and liabilities.
B)fair values of subsidiary assets and liabilities.
C)general price level adjusted values of subsidiary assets and liabilities.
D)fair values of parent company assets and liabilities.
Answer: B
Q2) A merger between a supplier and a customer is a(n):
A)friendly combination.
B)horizontal combination.
C)unfriendly combination.
D)vertical combination.
Answer: D
Q3) The difference between normal earnings and expected future earnings is:
A)average earnings.
B)excess earnings.
C)ordinary earnings.
D)target earnings.
Answer: B
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Chapter 2: Accounting for Business Combinations
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Q1) SFAS No.142 requires that goodwill impairment be tested annually for each reporting unit.Discuss the necessary steps of the goodwill impairment test.
Answer: In the first step of the goodwill impairment test,the fair value of the reporting unit is compared to its carrying amount.If the fair value is less than the carrying amount,then the carrying value of the goodwill is compared to its implied fair value.A loss is recognized when the carrying value of goodwill is higher than its fair value.
Q2) If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets,the excess should be:
A)allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.
B)recognized as ordinary gain or loss.
C)allocated to reduce long-lived assets.
D)accounted for as goodwill.
Answer: D
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4
Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) The primary beneficiary of a variable interest entity (VIE)must consolidate the VIE into its financial statements whenever:
A)substantially all of the entity's activities are conducted on behalf of an investor who has disproportionally few voting rights.
B)the voting rights are not proportional to the obligations to absorb the expected losses or receive expected residual returns.
C)the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties.
D)the holders of the equity investment at risk have the right to receive the residual returns of the legal entity
Answer: C
Q2) On the consolidated balance sheet,consolidated stockholders' equity is:
A)equal to the sum of the parent and subsidiary stockholders' equity.
B)greater than the parent's stockholders' equity.
C)less than the parent's stockholders' equity.
D)equal to the parent's stockholders' equity.
Answer: D
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Page 5
Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) On January 1,2017,Puma Corporation acquired 30 percent of Slume Company's stock for $150,000.On the acquisition date,Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value.The difference was due to the increased value of buildings with a remaining life of 10 years.During 2017 Slume reported net income of $25,000 and paid dividends of $10,000.Puma uses the equity method. What will be the balance in the Investment account as of Dec 31,2017?
A)$150,000
B)$157,500
C)$154,500
D)$153,000
Q2) A parent company received dividends in excess of the parent company's share of the subsidiary's earnings subsequent to the date of the investment.How will the parent company's investment account be affected by those dividends under each of the following accounting methods?
A)Cost Method,no effect; Partial Equity Method,no effect
B)Cost Method,decreased; Partial Equity Method,no effect
C)Cost Method,no effect; Partial Equity Method,decreased
D)Cost Method,decreased; Partial Equity Method,decreased
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) Simple Company,a 70%-owned subsidiary of Punter Corporation,reported net income of $240,000 and paid dividends totaling $90,000 during Year 3.Year 3 amortization of differences between current fair values and carrying amounts of Simple's identifiable net assets at the date of the business combination was $45,000.The noncontrolling interest in net income of Simple for Year 3 was:
A)$58,500.
B)$13,500.
C)$27,000.
D)$72,000.
Q2) Primer Company acquired an 80% interest in SealCoat Company on January 1,2016,for $450,000 cash when SealCoat Company had common stock of $250,000 and retained earnings of $250,000.All excess was attributable to plant assets with a 10-year life.SealCoat Company made $50,000 in 2016 and paid no dividends.Primer Company's separate income in 2016 was $625,000.The controlling interest in consolidated net income for 2016 is:
A)$675,000.
B)$665,000.
C)$660,000.
D)$625,000.
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Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) The amount of intercompany profit eliminated is the same under total elimination and partial elimination in the case of:
A)upstream sales where the selling affiliate is a less than wholly owned subsidiary.
B)all downstream sales.
C)horizontal sales where the selling affiliate is a wholly owned subsidiary.
D)all downstream sales and horizontal sales where the selling affiliate is a wholly owned subsidiary.
Q2) Sales from one subsidiary to another are called:
A)downstream sales.
B)upstream sales.
C)intersubsidiary sales.
D)horizontal sales.
Q3) Failure to eliminate intercompany sales would result in an overstatement of consolidated:
A)net income.
B)gross profit.
C)cost of sales.
D)all of these.
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Chapter 7: Elimination of Unrealized Gains or Losses on
Intercompany Sales of Property and Equipment
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Q1) P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S.On January 2,2017,S sold equipment with a five-year remaining life to P for a gain of $120,000.S reports net income of $600,000 for 2017 and pays dividends of $200,000.P's Equity from Subsidiary Income for 2017 is:
A)$480,000.
B)$384,000.
C)$403,200.
D)$576,000
Q2) P Corp.owns 90% of the outstanding common stock of S Company.On December 31,2017,S sold equipment to P for an amount greater than the equipment's book value but less than its original cost.The equipment should be reported on the December 31,2017 consolidated balance sheet at:
A)P's original cost less 90% of S's recorded gain.
B)P's original cost less S's recorded gain.
C)S's original cost.
D)P's original cost.
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Page 9
Chapter 8: Changes in Ownership Interest
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Q1) Which one of the following statements regarding IFRS and accounting for step acquisitions is most correct?
A)Under IFRS goodwill is identified and net assets remeasured to fair value for all subsequent transactions,both increasing and decreasing the ownership percentage,after control is achieved.
B)IFRS requires the recording of additional goodwill on subsequent increases in the parent's ownership percentage.
C)Under IFRS acquisition accounting is applied only at the date that control is achieved. D)IFRS requires the non-controlling interest to be measured at fair value.
Q2) P Corporation purchased an 80% interest in S Corporation on January 1,2016,at book value for $300,000.S's net income for 2016 was $90,000 and no dividends were declared.On May 1,2016,P reduced its interest in S by selling a 20% interest,or one-fourth of its investment for $90,000.What will be the Consolidated Gain on Sale and Subsidiary Income Sold for 2016?
A)Consolidated Gain on Sale,$9,000; Subsidiary Income Sold,$6,000
B)Consolidated Gain on Sale,$9,000; Subsidiary Income Sold,$15,000
C)Consolidated Gain on Sale,$15,000; Subsidiary Income Sold,$6,000
D)Consolidated Gain on Sale,$15,000; Subsidiary Income Sold,$15,000
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Chapter 9: Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements
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Q1) Search Company is a 90% owned subsidiary of Passage Company.On January 1,2016,Search Company purchased for $680,000 bonds of Passage Company that had a carrying value of $725,000 (par value $700,000).The bonds mature on December 31,2017.Both companies use the straight-line method of amortization and have a December 31 year-end.The increase in 2016 consolidated income (i.e.,income before subtracting noncontrolling interest)is:
A)$45,000.
B)$44,000.
C)$54,000.
D)$36,000.
Q2) On January 1,2016,Pale Company has $700,000 of 6%,10-year bonds with an unamortized discount of $28,000.Slugg Company,an 80% subsidiary,purchased $350,000 of these bonds at 102.The gain or (loss)on the retirement of Pale's bonds is:
A)$14,000 loss.
B)$14,000 gain.
C)$21,000 loss.
D)$21,000 gain.
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) Tangent Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims.Unsecured claims will be paid at the rate of thirty cents on the dollar.Arrow holds a note receivable from Tangent for $90,000 collateralized by an asset with a book value of $60,000 and a liquidation value of $30,000.The amount to be realized by Arrow on this note is:
A)$30,000.
B)$48,000.
C)$60,000.
D)$90,000.
Q2) The duties of the trustee include:
A)appointing creditors' committees in liquidation cases.
B)approving all payments for debts incurred before the bankruptcy filing.
C)examining claims and disallowing any that are improper.
D)calling a meeting of the debtor's creditors.
Q3) A bankruptcy petition filed by a firm is a:
A)chapter petition.
B)involuntary petition.
C)voluntary petition.
D)chapter 11 petition.
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Page 12
Chapter 11: International Financial Reporting Standards
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Sample Questions
Q1) In accounting for research and development costs.
A)the general rule under both US GAAP and IFRS is that research and development costs should be expensed as incurred .
B)IFRS generally expenses all research and development costs while US GAAP expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
C)US GAAP generally expenses all research and development costs while IFRS expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
D)both US GAAP and IFRS expense research costs as incurred but capitalize development costs once technological and economic feasibility has been demonstrated.
Q2) The goals of the International Accounting Standards Committee include all of the following EXCEPT:
A)To improve international accounting.
B)To formulate a single set of auditing standards to be applied in all countries.
C)To promote global acceptance of its standards.
D)To harmonize accounting practices between countries.
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Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign
Exchange Risk
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Q1) From the viewpoint of a U.S.company,a foreign currency transaction is a transaction:
A)measured in a foreign currency.
B)denominated in a foreign currency.
C)measured in U.S.currency.
D)denominated in U.S.currency.
Q2) With respect to disclosure requirements for fair value measurements,which of the following is NOT one of the three levels in the hierarchy of classifying fair value measurements?
A)a reconciliation of beginning and ending balances
B)significant unobservable inputs
C)significant other observable inputs
D)quoted prices in active markets for identical assets or liabilities
Q3) The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract:
A)extends beyond one year or the current operating cycle.
B)is a hedge of an identifiable foreign currency commitment.
C)is a hedge of an exposed net liability position.
D)was acquired to speculate in foreign currency.
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Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) To accomplish the objectives of translation,two translation methods are used depending on the functional currency of the foreign entity.Describe the two translation methods.
Q2) Average exchange rates are used to translate certain items from foreign financial statements into U.S.dollars.Such averages are used in order to:
A)smooth out large translation gains and losses.
B)eliminate temporary fluctuation in exchange rates that may be reversed in the next fiscal period.
C)avoid using different exchange rates for some revenue and expense accounts.
D)approximate the exchange rate in effect when the items were recognized.
Q3) The objective of remeasurement is to:
A)produce the same results as if the books were maintained in the currency of the foreign entity's largest customer.
B)produce the same results as if the books were maintained solely in the local currency.
C)produce the same results as if the books were maintained solely in the functional currency.
D)None of these.
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Page 15
Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) Which of the following statements most accurately describes interim period tax expense?
A)The best estimate of the annual tax rate times the ordinary income (loss)for the quarter.
B)The best estimate of the annual tax rate times income (loss)for the year to date less tax expense (benefit)recognized in previous interim periods.
C)Average tax rate for each quarter,including the current quarter,times the current income (loss).
D)The previous year's actual effective tax rate times the current quarter's income.
Q2) In SFAS No.131,the FASB requires all public companies to report a variety of information for reportable segments.Define a reportable segment and identify the information to be reported for each reportable segment.
Q3) Which of the following is NOT required to be disclosed by SFAS No.131?
A)Information concerning the enterprise's products.
B)Information related to an enterprise's foreign operations.
C)Information related to an enterprise's major suppliers.
D)All of theses are required disclosures.
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Page 16
Chapter 15: Partnerships: Formation, operation and Ownership Changes
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Q1) Which of the following is an advantage of a partnership?
A)mutual agency
B)limited life
C)unlimited liability
D)none of these
Q2) Letterman and Conan are partners who share profits and losses 3:7.The capital accounts on January 1,2017,are $120,000 and $160,000,respectively.Leno is to be admitted as a partner with a one-fourth interest in the capital and profits and losses by investing $80,000.Goodwill is not to be recorded.The capital balances after admission should be:
A)Letterman,$117,000; Conan,$153,000; Leno,$90,000
B)Letterman,$120,000; Conan,$160,000; Leno,$90,000
C)Letterman,$123,000; Conan,$160,000; Leno,$80,000
D)Letterman,$120,000; Conan,$167,000; Leno,$80,000
Q3) When a partner retires and withdraws assets in excess of his book value,the remaining partners absorb the excess:
A)equally.
B)in their profit-sharing ratio.
C)based on their average capital balances.
D)based on their ending capital balances.
Page 17
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Chapter 16: Partnership Liquidation
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Q1) X,Y,and Z have capital balances of $90,000,$60,000,and $30,000,respectively.Profits are allocated 35% to X,35% to Y,and 30% to Z.The partners have decided to dissolve and liquidate the partnership.After paying all creditors,the amount available for distribution is $60,000.X,Y,and Z are all personally solvent.Under the circumstances,Z will:
A)receive $18,000.
B)receive $30,000.
C)personally have to contribute an additional $6,000.
D)personally have to contribute an additional $36,000.
Q2) Which of the following statements is correct?
A)Personal creditors have first claim on partnership assets.
B)Partnership creditors have first claim on partnership assets.
C)Partnership creditors have first claim on personal assets.
D)Partnership creditors have first claim on partnership assets; and partnership creditors have first claim on personal assets.
Q3) The first step in the liquidation process is to:
A)convert noncash assets into cash.
B)pay partnership creditors
C)compute any net income (loss)up to the date of dissolution.
D)allocate any gains or losses to the partners.
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Page 18
Chapter 17: Introduction to Fund Accounting
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Q1) The entry to record the receipt of office equipment previously encumbered includes a debit to:
A)Office Equipment.
B)Encumbrances.
C)Reserve for Encumbrances.
D)both Office Equipment and Reserve for Encumbrances.
Q2) The two basic statements prepared for expendable fund entities are a balance sheet and a(n):
A)income statement.
B)statement of revenue.
C)statement of expenditures and encumbrances.
D)none of these.
Q3) The term used to describe the application of accounting to expendable fund entities is the:
A)accrual method.
B)cash method.
C)modified cash method.
D)modified accrual method.
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19
Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) When a truck is received by a governmental unit,it should be recorded in the General Fund as a(n):
A)appropriation.
B)encumbrance.
C)expenditure.
D)fixed asset.
Q2) A nonrecurring contribution from the General Fund to the Enterprise Fund is an example of an interfund:
A)reimbursement.
B)transfer.
C)services provided and used.
D)loan.
Q3) Which of the following is NOT a budgetary account?
A)Appropriations
B)Estimated Revenues
C)Encumbrances
D)Reserve for Encumbrances
Q4) GASB Statement No.34 specifies how governments report capital assets.Describe where capital assets are reported in government financial statements.
20
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Chapter 19: Accounting for Nongovernment Nonbusiness
Organizations: Colleges and Universities, hospitals, and
Other Health Care Organizations
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Q1) Cindy Duncan is a social worker on the staff of Military Family Center,a voluntary welfare organization.She earns $42,000 annually for a normal workload of 2,000 hours.During 2017 she contributed an additional 800 hours of her time to Military Family Center at no extra charge.How much should Military Family Center record in 2017 as contributed service expense?
A)$0
B)$1,680
C)$8,400
D)$16,800
Q2) Military Family Center is a voluntary welfare organization funded by contributions from the general public.During 2016 unrestricted pledges of $800,000 were received,half of which were payable in 2016 with the other half payable in 2017 for use in 2017.It was estimated that 10% of these pledges would be uncollectible.How much should National report as net contribution revenue for 2016 with respect to the pledges?
A)$800,000
B)$720,000
C)$360,000
D)$0
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