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Practice Test 6 - 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 total amount that should be reported as revenues in the governmental funds statement of revenues, expenditures, and changes in fund balances?
  2. A not-for-profit lessee enters into a 5-year finance lease for specialized equipment under ASC 842. Annual payments of $120,000 are due at each year-end; the discount rate is 7%. At commencement, the lessee recognizes a right-of-use asset and lease liability measured at the present value of lease payments. In subsequent periods, the lessee makes the required cash payments and records separate interest expense and amortization of the right-of-use asset. What impact does this finance lease have on the statement of cash flows classification of the $120,000 annual payment (assuming the lessee uses U.S. GAAP cash flow classifications)?
  3. Which of the following items is included in the consideration transferred in a business combination under ASC 805?
  4. A for-profit corporation has a deferred tax asset of $300,000 at December 31, 20X6 measured at a 30% enacted tax rate, related entirely to deductible temporary differences expected to reverse in 20X8. On November 1, 20X7, new tax legislation is enacted reducing the tax rate to 25% effective January 1, 20X8. Under FASB ASC 740, how should the entity account for the effect of the tax rate change in its 20X7 financial statements (assume no valuation allowance is needed)?
  5. A company estimates warranty costs at 2% of annual sales. Sales are $4,000,000. Actual warranty claims paid during the year total $55,000. The beginning warranty liability balance is $30,000. What is the ending warranty liability balance?
  6. A city operates a municipal golf course that was originally established to provide recreational opportunities for residents. The golf course charges greens fees and cart rentals, operates a pro shop, and provides golf lessons. In the current year, total revenues were $450,000 and total expenses were $520,000, resulting in a $70,000 operating loss that was covered by a transfer from the General Fund. Which fund type is most appropriate for the golf course operations?
  7. Under FIFO (periodic), beginning inventory is 200 units at $8. Purchases: 400 units at $10 and 300 units at $12. Sales: 700 units. What is ending inventory?
  8. During 2024, Riverside Corp. had the following transactions related to accounts receivable: beginning balance $180,000, credit sales $920,000, collections $885,000, and write-offs $22,000. The company uses the aging method and estimates uncollectible accounts as follows: current receivables 2%, 30-60 days past due 8%, 61-90 days past due 25%, and over 90 days past due 60%. At year-end, the aging analysis showed: current $120,000, 30-60 days $45,000, 61-90 days $18,000, and over 90 days $10,000. If the allowance account had a $3,200 credit balance before adjustment, what amount should be recorded as bad debt expense?
  9. Company A acquires all of Company B's outstanding stock for $1,000,000. Company B's recorded net assets have a book value of $600,000 and a fair value of $850,000. What amount of goodwill should be recognized at the acquisition date?
  10. A for-profit company issues a debt instrument whose interest payments are based on a leveraged commodity index (for example, 2× changes in a copper price index), and the debt host is not measured at fair value with changes in fair value recognized in earnings. The embedded feature meets the definition of a derivative and is not clearly and closely related to the debt host. Which is the appropriate accounting treatment under FASB ASC 815?
  11. Which of the following best distinguishes a discontinued operation from the disposal of an individual asset under U.S. GAAP?
  12. Denver Corp. exchanged old equipment (cost $150,000, accumulated depreciation $90,000) plus $25,000 cash for new equipment with a fair value of $95,000. The old equipment had a fair value of $70,000. The exchange has commercial substance. What is the gain or loss Denver should recognize?
  13. A for-profit retailer closes its books on December 31, 20X5. Based on approved timecards, employees earned $96,000 of wages from December 27–31 that will be paid on January 4, 20X6. Under FASB ASC 405 and ASC 710 (Compensation), what is the correct journal entry for the year-end accrual?
  14. A for-profit manufacturer enters into a 12-month forward contract to purchase a commodity used in production. The forward contract requires net cash settlement and is not designated as a hedging instrument under FASB ASC 815. At quarter-end, the forward contract has a positive fair value to the manufacturer. Which is the appropriate accounting treatment for this derivative instrument?
  15. What is the company's basic earnings per share?
  16. The going concern assumption underlies financial reporting under U.S. GAAP. Which of the following best describes this assumption?
  17. A for-profit entity with a defined benefit pension plan reports the following at December 31, 20X5 (in millions): projected benefit obligation (PBO) $52.0 and fair value of plan assets $47.5. At December 31, 20X4, the PBO was $49.0 and plan assets were $46.0. Under FASB ASC 715, what adjustment is needed at December 31, 20X5 to recognize the funded status of the plan on the statement of financial position (ignore tax effects)?
  18. What is the appropriate accounting treatment for the inventory's recovery in value in Year 2?
  19. Under GAAP, which of the following best describes when depreciation on a newly purchased asset should begin?
  20. For the purpose of applying the lower of cost or market rule, what is the designated market value of this inventory item?

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