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Practice Test 9 - CPA Financial Accounting & Reporting (FAR)

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

  1. How should this contract modification be accounted for?
  2. Pine Corp. owns 90% of Spruce LLC and consolidates Spruce under ASC 810. Spruce sold equipment to Pine on March 31, Year 1 for $150,000; Spruce's carrying amount was $120,000 and the equipment had a remaining useful life of 5 years at the sale date (straight-line, no salvage). Pine depreciates the equipment on its books based on the $150,000 purchase price over the remaining 5 years. At December 31, Year 1, what is the correct consolidation adjustment to eliminate the effects of this upstream intercompany fixed-asset sale (ignoring income taxes)?
  3. Which of the following assets acquired in a business combination must be recognized separately from goodwill, even if the acquiree did not previously recognize them?
  4. A city council adopted a legally binding ordinance dedicating an existing $4,000,000 cash balance to pay principal and interest on outstanding general obligation bonds over the next five years. Based on GASB standards, which fund type is most appropriate to account for these restricted resources and related debt service payments?
  5. What is the net revenue the retailer should recognize from this transaction for the year ended December 31, Year 1?
  6. How should TechFlow account for the foreign currency effects of this transaction in its 20X1 financial statements?
  7. A LIFO company has a LIFO reserve of $45,000. If FIFO were used, pretax income would be $45,000 higher. Assuming a 21% tax rate, by how much is LIFO net income lower than FIFO net income?
  8. Under ASC 805, which of the following is the correct treatment for direct costs of issuing equity securities as consideration in a business combination (e.g., underwriting fees)?
  9. A company uses the effective interest method for amortizing bond premiums and discounts. Which of the following statements correctly compares the accounting for bonds issued at a premium versus bonds issued at a discount?
  10. Based on the account balances provided, what is Riverside Electric Utility's unrestricted net position at December 31, 2024, assuming no restricted assets or net position restrictions exist?
  11. A company acquires equipment with a fair value of $80,000 by trading in old equipment (book value $15,000, fair value $20,000) and paying $60,000 cash. The exchange has commercial substance. What gain or loss is recognized on the exchange?
  12. What is the total value at which the Product Gamma inventory should be reported under U.S. GAAP?
  13. Titan Enterprises issued 50,000 shares of $100 par value, 8% preferred stock that is callable at $105 and has a liquidation preference of $108 per share. The stock was issued at $110 per share. If Titan calls all the preferred stock for redemption, what is the total charge to stockholders' equity?
  14. Which of the following transactions would decrease both total assets and total stockholders' equity by the same amount?
  15. What amount of the transaction price should Nexus allocate to the software license performance obligation?
  16. A city established a Capital Projects Fund to build a new library financed by a voter-approved $10,000,000 bond issue. At year-end, the city has $2,400,000 of bond proceeds remaining that are legally restricted for construction, and the city has $300,000 of contracts encumbrances outstanding. Under GASB standards for governmental funds (including GASB Statement No. 54 for fund balance reporting), how should the city classify the $2,400,000 in the Capital Projects Fund?
  17. A for-profit software company is preparing interim GAAP financial statements for the quarter ended June 30 and applies FASB ASC 606. The company enters into contracts that include a performance bonus that is variable consideration and is constrained until customer acceptance testing is complete. What information must be disclosed in the interim financial statements regarding the variable consideration under ASC 606?
  18. A city government (GASB) reports governmental activities in governmental funds using modified accrual. On June 30, 20X5, the city received an invoice for $140,000 for street repairs performed and completed on June 20, 20X5; the invoice will be paid on August 15, 20X5. The street repairs were routine maintenance (not a capitalizable improvement). What adjustment is necessary under modified accrual accounting in the General Fund at June 30, 20X5?
  19. A LIFO liquidation occurs when units sold exceed units purchased. During a period of historically rising prices, what is the income statement effect of a LIFO liquidation?
  20. On January 1, Year 1, a lessor enters a sales-type lease. The asset's cost is $80,000, its fair value is $95,000, and the present value of lease payments is $95,000. The lease term is 5 years with annual payments of $23,000 due at year-end. What is the selling profit recognized by the lessor at lease commencement?

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