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Practice Test 10 - CPA Financial Accounting & Reporting (FAR)

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. What is the designated market value that should be used to apply the lower of cost or market rule?
  2. A state government (State of Canyon) prepares government-wide financial statements in accordance with GASB standards. The State received a $12,000,000 operating grant from another state agency to support public health programs, with eligibility requirements that the State incur allowable costs; by year-end, the State has incurred $9,000,000 of allowable costs and has received the full $12,000,000 in cash. The State also received a $5,000,000 capital grant restricted for construction of a public health facility and has spent $1,500,000 on eligible construction costs by year-end. In the government-wide statement of activities, how should the State recognize revenue related to these grants for the year?
  3. Under ASC 842, which of the following is required for a lessor to classify a lease as a direct financing lease rather than an operating lease?
  4. At what value should this inventory item be reported?
  5. Under ASC 450, a loss contingency is accrued when which two conditions are both met?
  6. A public, for-profit corporation (Canyon Corp.) declared a $50,000 cash dividend on June 20, 20X5 and paid it on July 20, 20X5. Under FASB ASC 505 and ASC 230 (Statement of Cash Flows), how should the July 20 cash payment be classified in the statement of cash flows?
  7. Which of the following creates a deferred tax liability?
  8. What adjusting entry should Northland record on December 31, 2024?
  9. What is the proper accounting treatment for the fire loss in the company's December 31, Year 1 financial statements?
  10. What amounts should Catalyst report in its financial statements related to this investment?
  11. A for-profit construction contractor enters into a contract to build a customized asset for a customer for a fixed price, with progress billings issued monthly based on work performed. Management must determine whether revenue should be recognized over time and which method to measure progress toward completion. Which section of the FASB ASC provides the authoritative guidance on over-time recognition and measuring progress under the revenue standard?
  12. On October 1, 20X4, a U.S. for-profit entity (U.S. dollar functional currency) purchased inventory from a supplier in South Korea for 400,000,000 on credit; the inventory remained on hand at December 31, 20X4. The spot rate was $0.00078/ on October 1 and $0.00080/ on December 31, 20X4. Under U.S. GAAP, what is the correct exchange rate to use to translate the inventory cost for initial recognition and subsequent measurement at December 31 (ignore lower of cost or net realizable value)?
  13. Under ASC 805, which of the following is NOT a component of goodwill recognized in a business combination?
  14. A for-profit entity changed its estimate of an equipment asset's remaining useful life and salvage value after a major refurbishment improved performance and extended expected usage. The entity did not change its depreciation method; it only updated the inputs used in the depreciation estimate, consistent with FASB ASC 250-10-45 and ASC 360-10. What is the correct journal entry to reflect the revised estimate?
  15. In March 2024, Riverside Company discovered that its 2022 year-end inventory was overstated by $75,000 due to inclusion of goods shipped FOB destination that were in transit at year-end. The 2023 year-end inventory was correctly stated. Riverside's gross margin is 40% and the tax rate is 30%. What is the cumulative effect of this error on retained earnings as of December 31, 2023?
  16. A for-profit company is preparing its annual financial statements and needs to determine which GAAP literature is considered authoritative for nongovernmental entities and how to resolve conflicts among accounting guidance. Which section of the FASB ASC addresses the GAAP hierarchy and identifies the FASB Accounting Standards Codification as the source of authoritative GAAP?
  17. Based on the information provided, what is the total amount Nova Corp. should report as research and development expense for the current year?
  18. What is Apex's basic earnings per share for Year 1?
  19. How should this $50,000 correction be reported in the plan's current year financial statements?
  20. A company grants stock options with an exercise price of $25 per share when the market price is $25. The grant-date fair value using an option pricing model is $7 per option. What amount is used as the basis for compensation expense under ASC 718?

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