CPA Preparation: Financial Reporting
Chapter Exam Questions
Course Introduction
This course is designed to prepare students for the Financial Reporting section of the CPA examination by providing a comprehensive understanding of the concepts, principles, and standards that govern financial accounting and reporting. Topics include the conceptual framework, recognition and measurement of assets and liabilities, revenue recognition, equity transactions, and financial statement presentation and disclosures. The course also covers the application of Generally Accepted Accounting Principles (GAAP) in various business scenarios, as well as the analysis and interpretation of financial statements. Through a combination of lectures, problem-solving exercises, and practice exams, students will develop the technical proficiency and analytical skills needed to succeed in the Financial Reporting section of the CPA exam.
Recommended Textbook
Intermediate Accounting 6th Edition Volume 2 by Thomas H. Beechy
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11 Chapters
1425 Verified Questions
1425 Flashcards
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Chapter 1: The Framework for Financial Reporting
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Sample Questions
Q1) Which of the following statements is correct?
A) For companies that are self-insured, a provision must be established for events taking place prior to the reporting period if known.
B) There is no guidance for self-insurance under IFRS.
C) Contingent assets are only recorded when it is virtually certain that the benefits relating to the contingent assets will be received.
D) Contingent assets are only recorded when it is reasonably certain that the benefits relating to the contingent assets will be received.
Answer: C
Q2) By law,a fleet of aircraft must be subject to a major overhaul every 5 years as part of its scheduled maintenance program.Which of the following statements is correct?
A) An accrual should be made in each of the 5 years preceding the overhaul.
B) The costs of the overhaul should be expensed as incurred.
C) The cost of the overhaul should be deferred and amortized.
D) The estimated cost of the overhaul should be disclosed as part of a continuity schedule in the notes to the financial statements.
Answer: C
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Chapter 2: Accounting Judgements
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Sample Questions
Q1) ER issued for $2,060,000,two thousand of its 9%,$1,000 callable bonds.The bonds are dated January 1,2019,and mature many years from now.Interest is payable semi-annually on January 1 and July 1.The bonds can be called by the issuer at $102 on any interest payment date after December 31,2023.The unamortized bond premium was $28,000 at December 31,2021,and the market price of the bonds was $99 on this date.In its December 31,2021,balance sheet,at what amount should GC report the carrying value of the bonds?
A) $1,980,000
B) $2,028,000
C) $2,032,000
D) $2,040,000
E) Cannot answer; the bond term is not given
Answer: B
Q2) Bonds payable (due 5 years from the balance sheet date)should be classified as follows:
A) A contingent liability.
B) An element of the owners' equity.
C) A long-term liability.
D) A current liability.
Answer: C
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Chapter 3: Statements of Income and Comprehensive Income
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Sample Questions
Q1) Under IFRS,the treatment of any of a company's foreign subsidiary is dependent upon:
A) The functional currency of the subsidiary.
B) The nature and extent of the parent company's relationship with the subsidiary.
C) Whether the subsidiary is integrated or self-sustaining.
D) Managerial judgement.
Answer: A
Q2) A company reacquires its own shares during the fiscal year and reports the transaction in the theoretically correct manner.What effect will this transaction have on shareholders' equity and earnings per share,respectively?
A) Increase and decrease
B) Decrease and decrease
C) Decrease and increase
D) Increase and no effect
Answer: C
Q3) A bad debt loss is recognized when a subscriber to common shares defaults.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Statements of Financial Position and Changes in Equity; Disclosure Notes
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Sample Questions
Q1) The crucial aspect of debt is that the creditors can demand payment.
A)True
B)False
Q2) JMR Ltd.issued $100,000 of 8%,8 year,non-convertible bond with detachable stock purchase warrants.KER Corp.purchased the entire issue.Each $1,000 bond carries 10 warrants.Each warrant entitles KER to purchase one common share for $20.The bond issue sells for 104 exclusive of accrued interest.Shortly after issuance,the warrants trade for $5 each and the bonds were quoted at 103 ex-warrants.The market value of the bonds and warrants using the proportional method was:
A) $107,000
B) $321,000
C) $605,000
D) $108,000
Q3) At the end of 2014,interest on a perpetual loan is paid to the holder.The perpetual debt is shown as an equity instrument.Based on the above the interest is:
A) Deducted on the income statement
B) Added to the income statement
C) Deducted for income tax purposes
D) Added for income tax purposes
Page 6
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Chapter 5: The Statement of Cash Flows
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Sample Questions
Q1) Income tax expense generally equals the product of the current period income tax rate and pre-tax accounting income.
A)True
B)False
Q2) Ryan Company paid golf dues on behalf of their two top employees.This is an example of a:
A) Temporary difference
B) Reversing difference
C) Permanent difference
D) Fully deductible for income tax purposes
Q3) What term is used to describe an amount that will eventually be tax deductible?
Q4) Temporary differences very seldom reverse (i.e.,turnaround)in one or more future reporting periods.
A)True
B)False
Q5) All temporary differences are related to differences in the timing of accounting recognition compared with income tax recognition.
A)True
B)False
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Chapter 6: Revenue Recognition
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Sample Questions
Q1) A tax loss represents the present and deferred benefit that the company will be able to realize from the tax loss through a reduction of income taxes paid to governments.
A)True
B)False
Q2) VB Corporation reported a net loss of $50,000 for accounting purposes.Items included in the loss are golf dues amounting to $3,000,meals and entertainment totalling $10,000,CCA of $10,000,depreciation of $5,000,warranty expenses of $8,000 and warranty expenditures of $6,000.VB's taxable income is:
A) ($45,000)
B) ($51,000).
C) ($57,000).
D) ($58,000).
Q3) What options are open to a company that did not previously set up a deferred income tax benefit of a tax loss carry forward but has now determined that the probability of realization is greater than 50%?
Q4) Once a deferred benefit of a tax loss carry forward has been recorded,does it have to remain on the balance sheet until realized? Explain.
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Chapter 7: Financial Assets: Cash and Receivables
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Sample Questions
Q1) ABC INC.entered into a sales-type lease to lease JKL an asset that cost ABC INC.$120,000.The lease agreement requires five annual year-end rentals of $40,000 each.ABC INC.used a 15 percent interest rate to compute the rentals.The dealer's profit (or loss)that ABC INC.recognized was:
A) $14,086 loss.
B) $14,086 gain.
C) $18,000 gain.
D) $80,000 gain.
Q2) The use of contingent lease payments is one method companies use to avoid lease capitalization.
A)True
B)False
Q3) The lessee measures the cost of a leased asset,and the corresponding lease liability of a finance lease,as the:
A) fair market value of the leased asset.
B) future value of the periodic rental payments.
C) sum of the annual cash payments to be made during term of the lease.
D) present value of the periodic rental payments.
Q4) Explain what a temporary difference is and how it arises?
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Chapter 8: Cost-Based Inventories and Cost of Sales
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Sample Questions
Q1) Changes in defined benefit pension plans that reduce the expected years of future service of present employees are:
A) settlements.
B) adjustments.
C) terminations. D) curtailments.
Q2) Today is John's 57<sup>th</sup> birthday and he has served 14 years for his firm.John is expected to retire on his 65<sup>th</sup> birthday.His firm expects to incur $5,000 of annual net health care claims costs for John beginning one year after his retirement date and continuing each year for a total of seven years (assume seven end of year payments in all).To be fully eligible for these benefits,John must work 20 years.Compute expected post-retirement benefit obligation for John today if the discount rate is 8%.
A) $15,244
B) $12,322
C) $18,916
D) $14,064
Q3) How does a trustee impact upon accounting for defined pension plans?
Q4) What is a defined contribution plan?
Q5) When should the cost of termination benefits be recognized?
Page 10
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Chapter 9: Long-Lived Assets
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Sample Questions
Q1) ABC experienced the following changes in its capital structure during 2014: Outstanding on January 1,2014,90 common stock shares
Sold 120 common shares on February 1,2014
Sold 60 common shares on April 1,2014
Issued a 2 for 1 split on August 1,2014
ABC's weighted average number of common shares outstanding for 2014 would be:
A) 245.
B) 315.
C) 490.
D) 540.
Q2) The classification of a security as a convertible security should be based on information available at the time:
A) The security would be the most dilutive.
B) The security would be the most anti-dilutive.
C) The EPS calculation is made each year.
D) The security is issued.
Q3) Wholly-owned subsidiaries are required to disclose earnings per share.
A)True
B)False
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Chapter 10: Depreciation, Amortization, and Impairment
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Sample Questions
Q1) The following errors were made in 20x3: an understatement of purchases of $500 and an understatement of ending inventory of $500.The net effect on the 20x3 ending amount of retained earnings is:
A) $1,000 understatement.
B) $1,000 overstatement.
C) No effect, the errors offset.
D) No effect; the errors affect income, not retained earnings.
E) $500 understatement.
Q2) Changes in estimates and prospectively-applied accounting policy changes occur more often in practice than do retrospectively-applied accounting policy changes.
A)True
B)False
Q3) Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.
A)True
B)False
Q4) Accounting policy changes must always be handled retrospectively.
A)True
B)False
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Chapter 11: Financial Instruments: Investments in Bonds and Equity Securities
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Sample Questions
Q1) If a company converted a short-term note payable into a long-term note payable,this transaction would:
A) decrease only working capital.
B) decrease both working capital and the current ratio.
C) increase only working capital.
D) increase both working capital and the current ratio.
E) have no effect on either the current ratio or net working capital.
Q2) Recording the payment (as distinguished from the declaration)of a cash dividend whose declaration was already recorded will:
A) increase both the current ratio and working capital.
B) have no effect on the current ratio or earnings per share.
C) increase the current ratio but have no effect on working capital.
D) decrease both the current ratio and working capital.
E) None of these choices are correct.
Q3) The quick ratio will always be less than or equal to the current ratio.
A)True
B)False
Q4) What do the liquidity ratios focus on? Name two liquidity ratios.
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Q5) When would a qualified audit opinion not necessarily be a concern to a company?
Q6) What do efficiency ratios measure?
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