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Practice Test 5 - CPA Financial Accounting & Reporting (FAR)

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

  1. Which disclosures are required for Coastal Energy's asset retirement obligations in its 2024 financial statements?
  2. A public for-profit entity identifies three operating segments under ASC 280: North America, Europe, and Asia-Pacific. Management asserts Europe and Asia-Pacific should be aggregated into a single reportable segment. Europe has revenue of $420 million, profit of $34 million, and assets of $510 million; Asia-Pacific has revenue of $390 million, profit of $10 million, and assets of $480 million. Both segments sell the same product lines, have similar gross margins, share a centralized supply chain, and have similar long-term average gross margins over the past three years (Europe 28%–30%; Asia-Pacific 27%–29%). Based on the financial data, how should segments be aggregated?
  3. A county operates a landfill through its general fund and estimates that closure and postclosure costs will total $8,000,000. The landfill is 60% full at year-end, compared to 50% full at the beginning of the year. Current year expenditures in the general fund included $200,000 for landfill operations and $150,000 for equipment purchases related to the landfill. How should the landfill costs be reported in the government-wide statement of activities?
  4. How much revenue should RetailCorp recognize in Year 1 related to gift card sales and redemptions?
  5. What amount should be reported as noncontrolling interest in the consolidated balance sheet at December 31, 2024?
  6. Which of the following statements is true regarding the effective interest method of amortizing a bond premium or discount?
  7. Which of the following statements is correct regarding noncumulative preferred stock?
  8. A U.S. GAAP not-for-profit organization changed its accounting principle for recognizing conditional grants and contributions, concluding that certain awards previously recognized as contribution revenue upon award should instead be recognized only when the barrier is overcome, consistent with FASB ASC 958. The organization will retrospectively apply the change to prior periods presented under FASB ASC 250. In the comparative financial statements, $500,000 of contribution revenue recognized in 20X4 under the prior principle would not have been recognized under the new principle; the organization has no income taxes. How does retrospective application affect the 20X4 statement of activities presented in the 20X5 comparative financial statements?
  9. A for-profit lessee has an existing 6-year operating lease under ASC 842 with fixed payments of $80,000 at each year-end. At the end of Year 2, the lease is modified to extend the lease term by 2 additional years, and the modification grants the lessee an additional right of use that is not priced at the standalone rate; therefore, the modification is not accounted for as a separate contract. The lessee remeasures the lease liability using the updated discount rate and determines the lease liability increases by $90,000 on the modification date. How should the lessee account for the $90,000 increase in the lease liability on the modification date?
  10. On January 1, Year 1, a for-profit lessee enters into a 5-year operating lease of office space under ASC 842. The lease requires fixed payments of $100,000 at each year-end, and the lessee’s incremental borrowing rate is 6%; there are no initial direct costs, lease incentives, or prepaid/accrued rent. In accordance with ASC 842, the lessee measures the lease liability at the present value of lease payments ($421,236) and measures the right-of-use asset at the same amount. What journal entry should the lessee record at lease commencement for initial recognition?
  11. A county government's General Fund (modified accrual; GASB) levied $5,000,000 of property taxes during the current fiscal year. At year-end, $4,700,000 is expected to be collected within 60 days after year-end, and $200,000 is expected to be collected after 60 days; $100,000 is expected to be uncollectible. How should the General Fund measure the net amount of property taxes to report as receivable at year-end?
  12. A for-profit retailer updated its allowance for doubtful accounts due to an unexpected economic downturn that increased customer delinquencies. Based on new collection data, management revised expected credit losses on trade receivables, applying FASB ASC 326-20 and the change-in-estimate guidance in ASC 250-10-45. How does the change in estimate affect the income statement?
  13. A for-profit company receives an invoice on January 8, 20X6 for $75,000 of legal services performed entirely in December 20X5. The December 31, 20X5 financial statements have not yet been issued. Under FASB ASC 405 and ASC 855 (Subsequent Events), what is the most appropriate treatment for the $75,000 at December 31, 20X5?
  14. Under ASC 450, which of the following circumstances would require accrual of an environmental remediation liability?
  15. Under FASB ASC 260, Bravo Inc. reported net income of $5,000,000 for the year ended December 31, 20X5. Bravo has 100,000 shares of $100 par, 8% noncumulative preferred stock outstanding, and preferred dividends of $800,000 were declared for 20X5. Weighted-average common shares outstanding were 2,000,000. Calculate the basic EPS for 20X5.
  16. A for-profit entity (Quartz Inc.) holds an equity security accounted for under ASC 321 that is not quoted on an exchange. On December 31, 20X4, Quartz estimates fair value using a valuation model primarily based on unobservable inputs (projected cash flows and a company-specific discount rate), and there are no recent observable transactions for identical or similar securities. Under ASC 820, which fair value measurement technique/input level should be used?
  17. As a result of this subsequent event, what is the additional bad debt expense the company should recognize for Year 1?
  18. How should this transaction be accounted for on November 1, Year 1?
  19. A for-profit employer sponsors a defined benefit pension plan and updated actuarial assumptions during the current year due to demographic changes in its workforce (e.g., revised mortality and turnover assumptions). The change affects the projected benefit obligation measurement under FASB ASC 715 and is a change in estimate under ASC 250-10-45. How should the change in estimate be accounted for in the financial statements?
  20. What amount should the company report for its total ending inventory?

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