CPA Exam Preparation: Financial Reporting
Pre-Test Questions
Course Introduction
This course is designed to prepare students for the Financial Reporting (FR) section of the Certified Public Accountant (CPA) exam. It covers key concepts and standards in financial accounting and reporting for business enterprises, not-for-profit organizations, and governmental entities. Students will study the application and analysis of U.S. Generally Accepted Accounting Principles (GAAP), income recognition, balance sheet classifications, statement of cash flows, and government and not-for-profit financial statements. Emphasis is placed on problem-solving through practice questions, case studies, and simulations modeled after the CPA exam format, with strategies to improve accuracy and time management.
Recommended Textbook
Intermediate Accounting Volume 2 3rd Edition by Kin Lo
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10 Chapters
1033 Verified Questions
1033 Flashcards
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Page 2
Chapter 1: Current Liabilities and Contingencies
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which statement about contingencies is correct?
A) If the future outcome is remote but reliably measurable, a provision is recorded.
B) If the future outcome is remote, but not reliably measurable, disclosure is required.
C) If the future outcome is remote, but not reliably measurable, no action is required.
D) If the future outcome is remote, but reliably measurable, disclosure is required.
Answer: C
Q2) Which statement about contingencies is correct?
A) It involves only potential economic outflows of resources.
B) It is a possible condition that depends upon the outcome of a future event.
C) It involves uncertainty about either the timing or amount of payment.
D) It is an existing condition that depends upon the outcome of a future event.
Answer: D
Q3) Why are taxes payable not classified as financial liabilities?
Answer: The obligations to pay taxes are legislative in nature rather than contractual,hence they do not fit the definition of a financial liability as set out in IAS 32.
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3
Chapter 2: Non-Current Financial Liabilities
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) What are "zero-coupon bonds"?
A) Bonds that pay the market rate of interest.
B) Bonds that are unsecured.
C) Bonds that do not pay interest.
D) Bonds that are sold at a premium.
Answer: C
Q2) Cartwright Corporation had a $1,350,000,5% bond available for issue on September 1,2017.Interest is to be paid quarterly beginning November 30<sup>th</sup>.All of the bonds were issued at par on October 1<sup>st</sup>.Prepare the journal entries for October 1<sup>st</sup> and November 30<sup>th</sup>.
Answer: 11ea7ef7_db31_d7ad_92e1_377944f11731_TB1321_00_TB1321_00_TB1321_00_TB1321_00
Q3) When will bonds sell at a premium?
A) When the coupon rate is equal to the par value.
B) When the coupon rate is below the market rate.
C) When the coupon rate is above the market rate.
D) When the coupon rate is equal to market value.
Answer: C
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Page 4
Chapter 3: Equities
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Assume that a company issued 10,000 shares for $30/share.What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?
A) Debit to common shares for $28,000.
B) Debit to common shares for $30,000.
C) Credit to contributed surplus for $29,000.
D) Credit to contributed surplus for $1,000.
Answer: B
Q2) If 700 preferred shares with a par value of $35/share,a dividend rate of 5% and redeemable for $50/share,are sold for $45/share how much dividend may the preferred equity holders expect to receive?
A) $525
B) $1,225
C) $1,575
D) $1,750
Answer: B
Q3) Briefly describe recycling as it pertains to other comprehensive income.
Answer: Recycling of OCI refers to the process of recognizing amounts through OCI,accumulating that OCI in reserves,and later recognizing those amounts through net income and retained earnings.
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Page 5
Chapter 4: Complex Financial Instruments
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111 Flashcards
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Sample Questions
Q1) Windy Lake Lodge issued 24,000 at-the-money stock options to its management on January 1,2018.These options vest on January 1,2021.Windy Lake's share price was $19 on the grant date and $22 on the vesting date.Estimates of the fair value of the options showed that they were worth $3 on the grant date and $11 on the vesting date.On the vesting date,management exercised all 24,000 options.Windy Lake has a December 31 year-end.
Required:
Record all of the journal entries relating to the stock options.
Q2) How would the liability portion of the compound instrument be recorded?
A) Once separated, this component is accounted for at fair value with changes recorded through income.
B) Once separated, this component is accounted for in accordance with its substance.
C) Once separated, this component is accounted for at amortized cost.
D) Once separated, this component is accounted for at historical cost.
Q3) Which method must be used under ASPE to account for employee stock options?
A) Intrinsic value of options.
B) Time value of options.
C) Fair value of the options.
D) Market value of the shares.
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Page 6
Chapter 5: Earnings Per Share
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113 Flashcards
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Sample Questions
Q1) Explain how the dividends on non-cumulative preferred shares are adjusted in the EPS calculation.What is the underlying logic for this adjustment?
Q2) Describe the procedure for identifying dilutive and antidilutive potential ordinary shares and calculating diluted EPS.
Q3) Which statement is correct about "weighted average number of ordinary shares outstanding"?
A) Treasury shares that are cancelled are adjusted in this calculation.
B) Treasury shares that are not cancelled are adjusted in this calculation.
C) Treasury shares that are repurchased are adjusted in this calculation.
D) Treasury shares are ignored for purposes of this calculation.
Q4) Explain why other comprehensive income is excluded from the numerator of the EPS calculation.
Q5) What are the two assumptions of the "if-converted method" used when calculation incremental EPS?
Q6) What EPS information disclosure is required from private companies that choose to apply international standards?
Q7) Explain why only in-the-money options need be considered in the diluted EPS calculations.
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Chapter 6: Accounting for Income Taxes
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Which method does not use "temporary differences" to account for income tax expense?
A) The taxes payable method.
B) The deferral method.
C) The accrual method.
D) The tax allocation method.
Q2) GMS Corp.reported $680,000 in income tax expense for the year under the accrual method.Its balance sheet reported an overall increase in deferred income tax liability of $40,000 and a decrease in income tax payable of $50,000.How much would GMS report as income tax expense had it used the taxes payable method?
A) $680,000
B) $630,000
C) $720,000
D) $640,000
Q3) A company has a deferred tax liability of $112,500 at the beginning of the fiscal year relating to a taxable temporary difference of $450,000.The tax rate for the year increased from 25% to 35%.
Required:
Provide the journal entry to reflect the tax rate change.
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Page 8
Chapter 7: Pensions and Other Employee Future Benefits
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Sample Questions
Q1) A company has a defined benefit pension asset of $1,050,000 at the beginning of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
Q2) Katherina is currently 30 years old and plans to retire later in life.She would like to have an income of $35,000 per year during her retirement,which she anticipates will last for another 25 years.Assume that she receives the retirement income at the end of each of the 25 years.
Required:
Determine the amount of money Katherina will need to have accumulated by the time she starts her retirement.Assume a discount rate of 5%.
Q3) A company has a defined benefit pension liability of $750,000 at the beginning of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
Q4) Summarize the three steps in the accounting for defined benefit pension plans. To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Accounting for Leases
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Sample Questions
Q1) On January 1,2017,Troy Company entered a lease to rent office space.The lease requires Troy to pay $190,000 per year,at the beginning of each year,for 10 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Troy's incremental borrowing rate is 9%.
Required:
Classify this lease for Troy Company and record the journal entries for the first year of the lease.
Q2) On January 1,2017,Rushabh Company entered a lease to rent office space.The lease requires Rushabh to pay $190,000 per year,at the end of each year,for 10 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Rushabh's incremental borrowing rate is 9%.
Required:
Classify this lease for Rushabh Company and record the journal entries for the first year of the lease.
Q3) List four examples of the risks and four examples of rewards of ownership.
Q4) What method should be used to amortize gains or losses in a sale-leaseback transaction?
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Chapter 9: Statement of Cash Flows
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87 Flashcards
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Sample Questions
Q1) The opening balance in the land account for Adara Corp for fiscal 2017 was $500,000; the closing balance was $610,000.During the year land costing $130,000 was given to a creditor in full settlement of a $152,000 loan.The fair value of the land at the time of the exchange was $152,000.The company also purchased a separate parcel of land for cash during the year.
Required:
a.Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g.,the gain or loss on exchange of land for loan,etc.).
b.For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.
c.Why does the IASB require that companies classify cash flows as arising from operations,investing,or financing activities?
Q2) List three reasons why the statement of cash flows is a useful component of an enterprise's financial statements.
Q3) Discuss how the cash flow statement helps evaluate a company's quality of earnings.
Q4) What are the two distinct components to investing activities?
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Chapter 10: Accounting Changes
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Sample Questions
Q1) What is the essential characteristic that distinguishes a change in accounting policy from either an error correction or a change in estimate?
Q2) Define the term "prospective adjustment." Which type of accounting changes is it applied to?
Q3) Which of the following is a change in an estimate?
A) A company changes the presentation of operating expenses from "by function" to "by nature."
B) An enterprise switches from the gross method to the net method of presenting government grants.
C) A temporary difference was treated as a permanent difference.
D) The useful life on a building was originally estimated to be 20 years but the estimated useful life of the building is changed to only 15 years as at the beginning of the year.
Q4) Why are retrospective adjustments to past years' income and expenses recorded directly in retained earnings?
Q5) What are two reasons why an accounting change may be permitted to give modified retrospective or prospective treatment?
Q6) How should enterprises reflect changes in accounting standards?
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Page 12