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Practice Test 2 - CPA Financial Accounting & Reporting (FAR)

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

  1. A company's December 31 bank statement shows a balance of $25,000. The company's general ledger shows a cash balance of $27,500. The reconciliation reveals: outstanding checks of $3,800, deposits in transit of $6,200, and a bank service charge of $100 not yet recorded by the company. What is the correct adjusted cash balance?
  2. How should Falcon account for the lease modification at the end of Year 2, given that the additional 2 years were not part of the original lease term and are not included in the current lease liability?
  3. At what amount should the inventory be reported on the December 31, Year 1 balance sheet?
  4. What is the latest date through which the company must evaluate subsequent events?
  5. What is the company's basic loss per share for Year 1?
  6. Phi Corporation repurchased 6,000 shares of its $3 par common stock at $16 per share. The shares were originally issued at $12 per share. Phi has $180,000 in Additional Paid-in Capital from Treasury Stock from previous transactions. If Phi subsequently sells 2,500 shares at $14 per share, what is the journal entry for this sale under the cost method?
  7. A city council committed $500,000 of unrestricted resources to replace aging police vehicles, but the commitment is internal and not legally restricted by an external party or enabling legislation, and the city expects to purchase the vehicles next year. In which fund should the city account for these resources and the eventual vehicle purchases under GASB standards?
  8. How should the manufacturer account for the $200,000 payment?
  9. The statement of changes in net assets available for benefits for a pension plan should include which of the following?
  10. What is the amount of interest expense the company should report for the second six-month period ending December 31, Year 1?
  11. Cosmos Industries has been profitable for several years but experienced a $200,000 net loss in 2024. Prior to the loss, retained earnings was $450,000. During 2024, the company also declared and paid cash dividends of $75,000. Additionally, Cosmos corrected a prior period error that resulted in a $25,000 increase to beginning retained earnings (net of tax). What should Cosmos report as ending retained earnings for 2024?
  12. A company has AOCI of ($45,000) at the beginning of the year. During the year, OCI items (net of tax) include: unrealized gain on AFS securities $20,000 and foreign currency translation loss ($8,000). What is ending AOCI?
  13. What is the company's basic earnings per share for the year?
  14. What is the amount of premium amortization that should be recorded for the year ended December 31, Year 1?
  15. Which of the following is the most likely explanation for the increase in carrying value?
  16. Using the straight-line method, what is the annual depreciation expense for 20X4 after the improvement?
  17. A for-profit technology company discovered in 2026 that $600,000 of 2025 research and development (R&D) costs were incorrectly capitalized as an intangible asset and amortized over 3 years, instead of being expensed as incurred. At December 31, 2025, the balance sheet included an intangible asset of $600,000 related to this error; no amortization was recorded in 2025. The 2025 financial statements were issued and are presented comparatively with 2026. Under FASB ASC 250, which financial statement line item needs adjustment to correct the error?
  18. A cash flow hedge results in an unrealized gain of $50,000 on the hedging instrument at year-end. The gain is related to a forecasted transaction that has not yet occurred. Under ASC 815, how is this reported?
  19. A for-profit manufacturer revised its warranty liability estimate after a change in supplier materials reduced defect rates for products sold during the current year. Management concluded the expected claim rate should be lowered based on recent experience and updated expectations, consistent with FASB ASC 460-10 and the change-in-estimate guidance in ASC 250-10-45. What is the correct journal entry to reflect the revised estimate (assuming the existing warranty liability is overstated as of the revision date)?
  20. A for-profit entity has material equity-classified and liability-classified share-based payment arrangements accounted for under ASC 718. During the year, it granted new awards, modified certain awards, and recognized compensation cost in the income statement. What disclosure is required for the share-based compensation arrangements in the entity's annual financial statements?

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