AICPA CPA-Financial CPA Exam Questions Instant Access

Question 1

A development stage enterprise should use the same generally accepted accounting principles that apply to established operating enterprises for:

AOption A

BOption B

COption C

DOption D

Answer : A

Choice 'a' is correct. Development stage enterprises must use all the same principles as established enterprises including those of revenue recognition and deferral of expenses. The primary difference is that development stage enterprises must provide additional disclosures not required of established operating enterprises. SFAS #7, para. 10

Question 2

Which of the following types of entities are required to report on business segments?

ANonpublic business enterprises.

BPublicly-traded enterprises.

CNot-for-profit enterprises.

DJoint ventures.

Answer : A

Choice 'b' is correct. Only publicly-traded enterprises are required to report on business segments.

Choices 'a', 'c', and 'd' are incorrect, per the Explanation: above.

Question 3

Tack, Inc. reported a retained earnings balance of $150,000 at December 31,1990. In June 1991, Tack discovered that merchandise costing $40,000 had not been included in inventory in its 1990 financial statements. Tack has a 30% tax rate. What amount should Tack report as adjusted beginning retained earnings in its statement of retained earnings at December 31, 1991?

A$190,000

B$178,000

C$150,000

D$122,000

Answer : B

Choice 'b' is correct. $178,000.

Question 4

In single period statements, which of the following should not be reflected as an adjustment to the opening balance of retained earnings?

AEffect of a failure to provide for uncollectible accounts in the previous period.

BEffect of a decrease in the estimated useful life of depreciable equipment.

CCumulative effect of a change from the percentage of completion to the completed contract method of accounting for long-term construction projects.

DCumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.

Answer : B

Choice 'b' is correct. A change in the estimated useful life of a depreciable asset is a change in estimate handled prospectively. No adjustment to retained earnings is necessary.

Choice 'a' is incorrect. The correction of a failure to provide for uncollectible accounts is considered to be a correction of an error. The opening balance of retained earnings would be adjusted to correct the error.

Choice 'c' is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.

Choice 'd' is incorrect. This change is a change in accounting principle and is handled retrospectively.

With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.

Question 5

Thorpe Co.'s income statement for the year ended December 31, 1990, reported net income of $74,100. The auditor raised questions about the following amounts that had been included in net income:

The loss from the fire was an infrequent but not unusual occurrence in Thorpe's line of business.

Thorpe's December 31, 1990, income statement should report net income of:

A$65,000

B$66,100

C$81,600

D$87,000

Answer : D

Net income before adjustments

Rule: Unrealized losses (or gains) resulting from changes in market value of available-for-sale investments should be reported as a component of other comprehensive income in shareholders' equity.

Unrealized gains and losses on investments held for trading would be included in net income.

Correction of errors of prior periods should be reported as an adjustment to beginning retained earnings, not as an item of net income.

Choice 'd' is correct. $87,000.

Question 6

At December 31, 1998, Off-Line Co. changed its method of accounting for demo costs from writing off the costs over two years to expensing the costs immediately. Off-Line made the change in recognition of an increasing number of demos placed with customers that did not result in sales. Off-Line had deferred demo costs of $500,000 at December 31, 1997, $300,000 of which were to be written off in 1998 and the remainder in 1999. Off-Line's income tax rate is 30%. In its 1998 financial statements, what amount should Off-Line report as cumulative effect of change in accounting principle?

A$0

B$200,000

C$350,000

D$500,000

Answer : A

Choice 'a' is correct. When a change in accounting principle is considered inseparable from a change in estimate, the change is handled as a change in estimate - prospectively. No cumulative effect adjustment is made.

Choices 'b', 'c', and 'd' are incorrect since no cumulative effect adjustment is made.

Question 7

What are the Statements of Financial Accounting Concepts intended to establish?

AGenerally accepted accounting principles in financial reporting by business enterprises.

BThe meaning of 'Present fairly in accordance with generally accepted accounting principles.'

CThe objectives and concepts for use in developing standards of financial accounting and reporting.

DThe hierarchy of sources of generally accepted accounting principles.

Answer : C

Choice 'c' is correct. Statements of Financial Accounting Concepts are intended to establish the objectives and concepts that the Financial Accounting Standards Board will use in developing standards of financial accounting and reporting. SFAC 1 para. 3

Choice 'a' is incorrect. The Statements of Financial Accounting Concepts do not specify financial accounting standards prescribing accounting procedures or practices. SFAC 1 para. 3

Choice 'b' is incorrect. Auditing standards develop the meaning of 'Present fairly in accordance with generally accepted accounting principles.'

Choice 'd' is incorrect. The hierarchy of sources of generally accepted accounting principles is determined by GAAP.

AICPA CPA Financial Accounting and Reporting CPA-Financial CPA Exam Questions