CPA Exam Preparation Review
Questions
Course Introduction
The CPA Exam Preparation course is designed to equip students with the comprehensive knowledge and practical skills necessary to successfully pass all four parts of the Uniform Certified Public Accountant (CPA) Exam. Through a structured review of core subjects including Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation students engage in targeted practice questions, simulations, and case studies that mirror the CPA exam format. Emphasis is placed on mastering key accounting concepts, critical thinking, and effective test-taking strategies. By the end of the course, students will have built a strong foundation in professional standards and ethical responsibilities, positioning them for success in the accounting profession.
Recommended Textbook
Advanced Accounting 12th Edition by Paul M. Fischer
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Page 2
Chapter 1: Business Combinations: New Rules for a Long-Standing
Business Practice
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Q1) Which of the following would not be considered an identifiable intangible asset?
A)Assembled workforce
B)Customer lists
C)Production backlog
D)Internet domain name
Answer: A
Q2) Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks?
\(\quad \)Plant and Equipment \(\quad \)Long-Term Debt
A)\(\quad \)Fair value\(\quad \)\(\quad \)\(\quad \)\(\quad \) \(\quad \)Drake's carrying amount
B)\(\quad \)?Fair value \(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)Fair value
C)\(\quad \)?Drake's carrying amount\(\quad \) Fair value
D)\(\quad \)?Drake's carrying amount \(\quad \)Drake's carrying amount
Answer: B
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Chapter 2: Consolidated Statements: Date of Acquisition
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Q1) Consolidation might not be appropriate even when the majority owner has control if:
A)The subsidiary is in bankruptcy.
B)A manufacturing-based parent has a subsidiary involved in banking activities.
C)The subsidiary is located in a foreign country.
D)The subsidiary has a different fiscal-year end than the parent.
Answer: A
Q2) How is the non-controlling interest treated in the consolidated balance sheet?
A)It is included in long-term liabilities.
B)It appears between the liability and equity sections of the balance sheet.
C)It is included in total as a component of shareholders' equity.
D)It is included in shareholders' equity and broken down into par, paid-in capital in excess of par and retained earnings.
Answer: C
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4
Chapter 3: Consolidated Statements: Subsequent to Acquisition
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Q1) On January 1, 2016, Rabb Corp.purchased 80% of Sunny Corp.'s $10 par common stock for $975,000.On this date, the carrying amount of Sunny's net assets was $1,000,000.The fair values of Sunny's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount.
In the January 1, 2016, consolidated balance sheet, goodwill should be reported at ____.
A)$0
B)$75,750
C)$95,000
D)$118,750
Answer: D
Q2) The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the A)cost method.
B)simple equity method.
C)investment method.
D)sophisticated equity method.
Answer: D
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Chapter 4: Intercompany Transactions: Merchandise, Plant
Assets, and Notes
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Q1) Diller owns 80% of Lake Company common stock.During October 2016, Lake sold merchandise to Diller for $300,000.On December 31, 2016, one-half of this merchandise remained in Diller's inventory.For 2016, gross profit percentages were 30% for Diller and 40% for Lake.The amount of unrealized profit in the ending inventory on December 31, 2016 that should be eliminated in consolidation is ____.
A)$80,000
B)$60,000
C)$32,000
D)$30,000
Q2) Williard Corporation regularly sells inventory items to its subsidiary, Petty, Inc.If unrealized profits in Petty's 2016 year-end inventory exceed the unrealized profits in its 2017 year-end inventory, 2017 combined
A)cost of sales will be less than consolidated cost of sales in 2017.
B)gross profit will be greater than consolidated gross profit in 2017.
C)sales will be less than consolidated sales in 2017.
D)cost of sales will be greater than consolidated cost of sales in 2017.
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Page 6
Chapter 5: Intercompany Transactions: Bonds and Leases
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Q1) Soap Company issued $200,000 of 8%, 5-year bonds on January 1, 2016.The discount on issuance was $12,000.Bond interest is paid annually on December 31.On December 31, 2018, Pumice Company purchased one-half of the outstanding bonds for $96,000.Both companies use the straight-line method of amortization. How much bond interest expense will appear on the December 31, 2018, consolidated income statement?
A)$18,400
B)$16,000
C)$9,200
D)$8,000
Q2) When there is an unguaranteed residual value for the lessor in a direct-financing lease, this means:
A)the total payments to be received by the lessor will come from the lessee.
B)the total payments to be received by the lessee will come from the lessor.
C)a portion of the total payments to be received by the lessor will come from parties outside the consolidated group.
D)a portion of the total payments to be received by the lessee will come from parties outside the consolidated group.
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Chapter 6: Cash Flow, Eps, and Taxation
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Q1) Ponti Company purchased the net assets of the Sorri Company for $800,000.The book value of the net assets of Sorri Company were as follows on the acquisition date:
\[\begin{array} { l r }
\text { Cash } & \$ 50,000 \\
\text { Inventory } & 150,000 \\
\text { Land } & 150,000 \\
\text { Building (net) } & 400,000 \\
\text { Liabilities } & ( 200,000 ) \\
\quad \text { Net assets } & \$ 550,000 \\
\end{array}\] The market values were as follows: Inventory, $160,000; Land, $170,000; Building, $450,000.The excess purchase price is allocated to goodwill.On the consolidated statement of cash flows, what is the amount that will appear as cash applied to investing as a result of this purchase?
A)$800,000
B)$720,000
C)$750,000
D)$670,000
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Chapter 7: Special Issues in Accounting for an Investment
in a Subsidiary
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Q1) Which of the following is not true of an investor's investment in the preferred stock of an investee?
A)Because preferred stock normally does not carry voting rights, an investor many not have controlling interest if owning 100% of the preferred stock.
B)The investor's purchase of investee's outstanding preferred stock viewed of a retirement of the stock.
C)Preferred stock is included in the Determination and Distribution of Excess Schedule to calculate goodwill.
D)Preferred stock dividends reduce the income available to the NCI.
Q2) If the sale of an investment in a subsidiary is deemed to be a disposal of a component of the entity, the appropriate accounting treatments for the results its operations for the period and the gain or loss on the sale are: Results of Operations for the Period Gain or Loss on the Sale
A)Normal recurring operations Extraordinary item
B)Discontinued operations Discontinued operations
C)Normal recurring operations Normal recurring operations
D)Normal recurring operations Discontinued operations
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Chapter 8: Subsidiary Equity Transactions, Indirect
Subsidiary Ownership, and Subsidiary Ownership of Parent Shares
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Q1) Apple Inc.purchased a 70% interest in the Banana Company for $490,000 on January 1, 2018, when Banana Company had the following stockholders' equity: \[\begin{array} { l r }
\text { Common stock, } \$ 10 \text { par } & \$ 100,000 \\
\text { Paid-in capital in excess of par } & 250,000 \\ \text { Retained earnings } & 150,000 \end{array}\]
At the time of Apple's purchase, Banana Company was an 80% owner of the Carrot Company.Also on that date, Carrot Company has a machine that has a market value in excess of book value of $20,000.There is no difference between book and market value for any Banana Company assets.The goodwill that would result from this purchase is
A)$184,000
B)$180,000
C)$140,000
D)$126,000
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Chapter 9: The International Accounting Environment
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Q1) One of the challenges facing U.S.companies adopting IFRS is:
A)the costs incurred to do so.
B)the subjectivity introduced into financial reporting.
C)certain areas exist where convergence may not be achieved.
D)All of the above.
Q2) The process of expressing a subsidiary's financial statement amounts denominated in a foreign currency into amounts measured in the reporting currency of its parent company is referred to as:
A)redenomination of financial statements.
B)foreign currency translation.
C)currency consolidation.
D)foreign currency transaction.
Q3) Explain the goal of harmonization of accounting standards.Why is this so important to multinational companies?
Q4) Explain the factors which have led to the differences in accounting standards among nations.
Q5) Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.
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Chapter 10: Foreign Currency Transactions
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Q1) On January 1, 2016, a U.S.firm bought a truck from a foreign firm for 10,000 FC, to be paid on March 1 in FC.The spot rate was 1 FC = $1.25 on January 1 and 1 FC = $1.265 on March 1.To protect themselves from exchange rate changes, the U.S.firm entered into a forward exchange contract on January 1 to buy FC on March 1 for $1.28.
Required:
Make all the necessary journal entries to record the transactions for the U.S.firm on January 1 and March 1.Ignore the split between spot gain/loss and time value.
Q2) In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as
A)a component of stockholders' equity.
B)a component of other comprehensive income.
C)an extraordinary item.
D)income from continuing operations.
Q3) Discuss the differences in using an option to hedge a foreign currency risk rather than a forward contract.
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Page 12
Chapter 11: Translation of Foreign Financial Statements
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Questions
Q1) Consider the consolidation process for a foreign subsidiary: When the excess of cost over book value is attributable to identifiable assets, those assets are adjusted in the "distribution" elimination entry by an amount that is calculated as
A)the difference between cost and fair value as measured in the foreign currency
B)the difference between cost and fair value as measured in the foreign currency multiplied by the historical exchange rate
C)the difference between cost and fair value as measured in the foreign currency multiplied by the weighted-average exchange rate
D)the difference between cost and fair value as measured in the foreign currency multiplied by the current exchange rate
Q2) Exchange rates will not usually directly affect the cash flows of the parent entity in which of the following cases?
A)The foreign entity operates in a currency other than its own.
B)The foreign entity operates in its local currency.
C)The foreign entity functions in a currency other than its local currency.
D)The foreign entity functions in the parent's currency.
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Chapter 12: Interim Reporting and Disclosures About
Segments of an Enterprise
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Q1) Assume there is an interim year-to-date operating loss and a potential tax benefit associated with this loss.Which of the following is true?
A)The year-to-date loss is completely deductible at year end.
B)The benefit associated with a year-to-date loss should be recognized if it is expected to be realized during the year and the benefit is recognizable as a deferred tax asset at the end of the year.
C)No interim year-to-date losses can be carried back against any prior year's income.
D)A current year-to-date interim loss may not be offset entirely by income in later interim periods of the current fiscal year.
Q2) The acquisition of a paper mill by a large publishing company is an example of A)horizontal integration.
B)vertical integration.
C)diversification.
D)consolidation.
Q3) Explain the difference in the independent and integral viewpoints of accounting for interim periods.Which method best describes the accepted accounting practice for interim financial reporting?
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Page 14
Chapter 13: Partnerships: Characteristics, Formation, and
Accounting for Activities
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Sample Questions
Q1) Abbott and Costello are partners.Abbott draws a salary of $90,000 per year and Costello draws a salary of $150,000 per year.Each partners Drawing account however shows they have withdrawn $50,000 and $60,000 respectively.What is the total amount of salary they would show on their income distribution?
A)$240,000
B)$350,000
C)$110,000
D)None of the above
Q2) RUPA ' deals with such topics as:
A)the rights of partners
B)Capital distribution,
C)partnership lending
D)Partnership drawing
Q3) In the absence of a partnership agreement, RUPA would indicate profit and losses are to be:
A)Divided in a ratio according to capital
B)Divided in a ration according to initial investment
C)Divided in a ratio according to ending capital investment
D)Dividend equally
Page 15
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Chapter 14: Partnerships: Ownership Changes and Liquidations
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Q1) In liquidation of a partnership profit and loss become part of:
A)Partners Drawing
B)Cash
C)Partners' capital
D)Partners personal wealth not related to partnership
Q2) If a new partner were to purchase 99% of an existing partner's share of a business which account would be debited:
A)Existing Partners Drawing
B)New Partners Drawing
C)Existing Partners Capital
D)New Partners Capital
Q3) When an existing partner sells interest in the partnership and Goodwill is recognized, what is the likely entry made:
A)Debit Expense
B)Debit selling partners' Drawing
C)Debit Capital
D)Debit cash
Q4) Describe the order in which assets must be distributed upon liquidation of a partnership
Chapter 15: Government and Not for Profit Accounting
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Q1) Tax anticipation notes are an example of
A)Deferred assets
B)Deferred liability
C)Accrued assets
D)Short-term operating debt.
Q2) Unlike For Profit organizations, the first step in the closing process is generally to close revenue.What should be the first step in closing for an entity that uses Fund accounting?
A)Close revenue
B)Close expense
C)Close budgetary entries
D)Close Fund Balances
Q3) What type of instrument can be helpful toll for governmental entities hedging the interest rate risk associated with their bond issue?
A)Money markets
B)Derivatives
C)Commercial paper
D)Pooled funds
Q4) Identify the three fund types used in government accounting and their relevance:
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Chapter 16: Governmental Accounting: Other
Governmental Funds, Proprietary Funds, and Fiduciary Funds
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Q1) The primary purpose of Debt Service funds is to serve as monies set aside for an insubstance defeasance.
A)True
B)False
Q2) An enterprise fund should be used to account for
A)a free city-run swimming pool paid for with property tax.
B)a city-run water utility serving the general public.
C)any activity which the city plans to sell to external users for a fee either now or in the future.
D)Both b and c are correct.
Q3) A government may use agency funds to account for all but the following:
A)taxes that are collected that are restricted for a special purpose
B)employee withholdings
C)taxes collected on behalf of other governmental units
D)capital projects undertaken by a government for which special assessment bonds were issued, but for which it has no responsibility in the case of nonpayment
Q4) What reporting is required for the accounting for employee Pension Trust Funds.
Page 18
Q5) What is escheat property and how do we account for it?
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Chapter 17: Financial Reporting Issues
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Q1) The Single Audit Act requires that a governmental unit have a single audit if they
A)receive any Federal Funds even on a pass-through basis.
B)are not in compliance with the Federal grant conditions.
C)receive more than $300,000 in Federal funds annually.
D)only receive one Federal grant.
Q2) General purpose financial statements are part of the financial section of a comprehensive annual financial report
A)True
B)False
Q3) One of the purposes of the financial audit that accompanies statements is to show that the statements have been prepared in accordance with GAAP, GASB, and state, municipal, and federal laws.
A)True
B)False
Q4) Reciprocal interfund activities include all but which of the following?
A)interfund loans
B)interfund services between government and proprietary funds
C)advances to/from other funds
D)interfund reimbursements
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Chapter 18: Accounting for Private Not-For-Profit Organizations
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Q1) What are the two major categories of resources obtained by voluntary health and welfare organizations, and how do they differ?
Q2) In a not-for-profit organization, depreciation on capital assets is recognized on equipment.
A)True
B)False
Q3) The Brown Museum of Art would need to recognize a contributed work of art as contribution revenue if it was:
A)displayed with its Impressionism Collection.
B)to be auctioned to raise funds to expand the gift shop.
C)used for its educational outreach program that teaches children to paint.
D)sold to purchase an item for its Modern Collection.
Q4) A donation was received by a voluntary health and welfare organization of materials to be used in providing services.How would these donated materials be recorded?
A)As inventory
B)As restricted contributions
C)As assets held for resale
D)As contributed services
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Chapter 19: Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations
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Q1) Are not-for-profit universities required to use fund accounting?
Q2) Southern Coast (private) University received the following pledges during 2014: ?
A)Joy Dance pledges $60,000 to be paid over a three-year period beginning at the end of this year.Southern Coast discounts this contribution at 10%.The present value is $49,737.? ?
B)As a result of a pledge drive, $500,000 is pledged to be paid by the end of the accounting year.Ten percent of pledges in the past have been shown to be uncollectible.? Required: ?
Make the necessary journal entries to record the pledges.
Q3) In a private health care organization, plant replacement and expansion funds account for:
A)property improvements.
B)issuance of long-term debt.
C)payments on long-term debt.
D)none of the above
Q4) How has the adoption of GASB Statement No.35 changed the reporting standards for colleges and universities.
Page 21
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Chapter 20: Estates and Trusts: Their Nature and the
Accountants Role
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Q1) Define what makes up the corpus or principal of an estate and list several examples.Also, list the potential claims or deductions from the principal.
Q2) For estate planning purposes, Albert began distributing gifts in 2012.Already, in 2012, Albert has given his daughter stocks costing $5,000, with a current market value of $10,000.
? Required: ?
What is the maximum additional gift Albert can give in 2012 to his daughter in cash without incurring any gift tax liability assuming that:
?
a.Albert is single.
b.Albert is married and his wife is willing to give the maximum amount the couple is allowed.
Q3) An investment would be included in the estate at its fair value on the date of the owner's death.
A)True
B)False
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Chapter 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
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Q1) Which of the following is not a general objective of bankruptcy procedures?
A)assurance that all obligations of the debtor will be satisfied completely
B)attempt to give the debtor a fresh start
C)assurance of an equitable distribution of the debtor's property among creditors
D)None of the above is a general objective.
Q2) In a quasi-reorganization, which of the following may occur?
A)Excess plant capacity may be sold
B)Assets may be revalued to reflect impaired values
C)Retained Earnings deficits are eliminated by changes made to the capital structure
D)All of the above may occur
Q3) The Statement of Realization and Liquidation reports the actual liquidation results.It is a report on the activities of the trustee made periodically to the bankruptcy court.
A)True
B)False
Q4) Describe the duties of the trustee in a Chapter 7 liquidation.
Q5) Differentiate by function the Accounting Statement of Affairs and the Statement of Realization and Liquidation.
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Chapter 22: Derivatives and Related Accounting Issues
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Q1) On August 9, Jacobs Company buys 25 contracts on Nymex to receive December delivery of Brent Crude Oil.Each contract is in units of 1,000 bbls at a futures price of $24.85 per bbl.The initial margin on the contract is set at $25,000, with a maintenance margin of $19,000.The futures prices are as follows:
?
?
\[\begin{array} { r r r }
\text { Aug. } 9 & \text { Aug. } 10 & \text { Aug. } 11 \\
\$ 24.85 & \$ 24.63 & \$ 24.56 \end{array}\] Required:
?
a.Journalize the entries for Jacobs Company for the first three days of the contract.? ?
b.Why are forward prices discounted and future prices are not discounted?
Q2) The gains and losses from cash flow hedges are recorded in OCI until the impact of the hedged item in included in earnings.
A)True
B)False
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Page 24
Chapter 23: Equity Method for Unconsolidated Investments
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Q1) Under the equity method of accounting, items affecting the investment income account include all but the investor's portion of:
A)the investee's net income.
B)any intercompany profits in inventory.
C)the investee company's dividends.
D)the amortization of the excesses of the price over the book value of the investment.
Q2) Company P uses the sophisticated equity method of accounting for its 30% investment in Company S's common stock.During 20X9, Company S reported net earnings of $650,000 and paid dividends of $150,000.Assume that all the undistributed earnings of Company S will be distributed as dividends in future periods.The dividends received from Company S are eligible for the 80% dividends received deduction.Company P's 20X9, tax rate is 30%.In its December 31, 20X9, balance sheet, the increase in the deferred tax liability from these transactions would be ____.
A)$7,500
B)$9,000
C)$150,000
D)$30,000
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Page 25
Chapter 24: Variable Interest Entities
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Q1) Income of the consolidated company is distributed based on contractual terms, not the Primary Company ownership of VIE common stock.
A)True
B)False
Q2) The primary bene ciary will likely record its share of VIE interest revenue on its books.
A)True
B)False
Q3) The primary bene ciary has control of the variable interest entity (VIE) based on its power to control the activities of the VIE and the obligation to absorb losses and receive bene ts from the VIE.
A)True
B)False
Q4) Consolidation procedures are applied to controlling ownership interests in Variable Interest Entities.
A)True
B)False
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