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CPA Exam - FAR (Financial Accounting and Reporting) practice questions

200 free questions with answers and explanations.

Practice test
  1. 151.A county government issued $10,000,000 in general obligation bonds at a premium of $200,000 to finance the construction of a new public safety building. The bonds have a 20-year term. Under modified accrual accounting in the Capital Projects Fund, how should the bond premium be recorded upon receipt?State and Local Governments
  2. 152.A not-for-profit (NFP) entity received a cash contribution of $50,000 for a specific program. The NFP incurred $15,000 of expenses for this program during the current year. How should the NFP report the release of donor restrictions related to this program for the current year?Not-for-Profit Entities
  3. 153.A municipal utility, accounted for as an Enterprise Fund, completed the construction of a new water treatment plant at a cost of $15,000,000. It was financed by $10,000,000 in revenue bonds issued by the utility and $5,000,000 from a capital grant from the state government. In the government-wide financial statements, what amount should be reported as 'Net Investment in Capital Assets' related to this plant?State and Local Governments
  4. 154.A not-for-profit (NFP) organization, a local animal shelter, received a $25,000 cash donation from a supporter. The donor did not specify any restrictions on the use of the funds. The NFP's board of directors subsequently designated $10,000 of this donation for the purchase of a new veterinary examination table. How should this board-designated amount be classified in the NFP's financial statements?Not-for-Profit Entities
  5. 155.A not-for-profit (NFP) organization received a donation of marketable securities with a fair value of $75,000. The donor stipulated that the principal of the securities must be invested indefinitely, but the income generated from the investments can be used for any general operating purposes of the NFP. How should this contribution be classified?Not-for-Profit Entities
  6. 156.A city government received $750,000 from a federal grant to fund a specific program. The grant terms stipulate that the funds are to be used for eligible expenditures incurred during the current fiscal year. By year-end, the city had incurred and paid $600,000 of eligible expenditures. Under modified accrual accounting, what amount should the city report as grant revenue for the current fiscal year in its governmental funds?State and Local Governments
  7. 157.A not-for-profit (NFP) organization received a grant of $200,000 from a private foundation. The grant agreement states that the NFP must achieve specific measurable outcomes related to its educational programs before the funds can be released. If the NFP fails to meet these outcomes, the funds must be returned. As of year-end, the NFP has not yet met the outcomes. How should the NFP recognize this grant at year-end?Not-for-Profit Entities
  8. 158.A local government operates a public library. The library receives significant contributions from a local foundation, which are legally restricted to be used exclusively for the acquisition of new books. Which type of governmental fund would be most appropriate to account for these contributions and their related expenditures?State and Local Governments
  9. 159.A not-for-profit (NFP) organization received a cash contribution of $100,000 to be used for general operating expenses in the upcoming fiscal year. The donor specified that the funds should not be spent until July 1st of the next year. How should this contribution be classified in the NFP's financial statements for the current year ending December 31st?Not-for-Profit Entities
  10. 160.A city government is preparing its government-wide financial statements. It owns a municipal golf course, which is accounted for as an Enterprise Fund. The golf course had a net capital asset balance of $10,000,000 and related outstanding revenue bonds of $6,000,000. Additionally, the city's General Fund owns a police station with a net capital asset balance of $8,000,000, financed by general obligation bonds of $5,000,000. What is the total 'Net Investment in Capital Assets' that should be reported in the government-wide Statement of Net Position?State and Local Governments
  11. 161.A municipality's General Fund transferred $1,000,000 to its Debt Service Fund to cover the principal and interest payments due on general obligation bonds. How should this transfer be reported in the governmental fund financial statements?State and Local Governments
  12. 162.A city government uses the purchases method for accounting for its supplies in the General Fund. During the fiscal year, the city purchased $80,000 worth of office supplies. At the beginning of the year, the inventory of supplies was $10,000, and at year-end, it was $15,000. Under the modified accrual basis of accounting, what amount should be reported as 'Expenditures - Supplies' in the General Fund for the year?State and Local Governments
  13. 163.A not-for-profit (NFP) organization received a cash donation of $75,000 to be used for the construction of a new wing of its facility. The donor specified that the funds should not be spent until the NFP raises an additional $150,000 from other sources for the same project. As of the end of the fiscal year, the NFP had raised $100,000 towards the additional amount. How should the $75,000 donation be reported in the financial statements?Not-for-Profit Entities
  14. 164.A publicly traded company, Sigma Corp., issued 1,000 shares of $1 par value common stock for $50 per share. Later in the year, Sigma Corp. repurchased 100 shares of its own common stock for $60 per share. The company uses the cost method to account for treasury stock. What is the impact of the repurchase on Sigma Corp.'s total stockholders' equity?Financial Reporting
  15. 165.A company, a U.S. parent, has a subsidiary in a foreign country. The subsidiary's functional currency is the local currency, which is highly inflationary. Which method should the U.S. parent use to translate the subsidiary's financial statements?Select Transactions
  16. 166.A not-for-profit community arts center received a cash contribution of $250,000 from a local foundation. The terms of the grant stipulate that the funds must be used to establish a new educational outreach program for underserved youth. The arts center expects to use these funds over the next three years. How should this contribution be reported in the Statement of Activities in the year of receipt?Not-for-Profit Entities
  17. 167.A company changed its inventory costing method from FIFO to the weighted-average method. The change was justified as providing a more appropriate presentation of financial position and results of operations. As a result of this change, the company determined that beginning inventory for the current year (January 1, Year 3) would have been $10,000 lower under the weighted-average method, and retained earnings at the beginning of Year 3 would have been $7,000 lower (net of tax). How should this accounting change be reported in the Year 3 financial statements?Select Transactions
  18. 168.A publicly traded company, Zenith Corp., recognized pretax financial income of $1,000,000 for the year ended December 31, Year 1. Included in this amount was $200,000 of interest revenue from municipal bonds, which is tax-exempt. Zenith Corp.'s enacted tax rate is 25%. What is Zenith Corp.'s current income tax expense for Year 1?Financial Reporting
  19. 169.A local government operates a public library. The library receives significant contributions from a dedicated property tax levy, which by law, can only be used for library operations and maintenance. Which fund type would most appropriately account for these financial resources?State and Local Governments
  20. 170.A company issued 10,000 shares of $1 par value common stock for $50 per share. Later in the year, the company reacquired 1,000 shares of its own common stock for $60 per share and accounted for it using the cost method. What is the impact on the company's total stockholders' equity as a result of the treasury stock reacquisition?Financial Reporting
  21. 171.A publicly traded company, Alpha Corp., is preparing its financial statements for the year ended December 31, Year 1. Alpha Corp. holds an equity investment in Beta Co. with a carrying amount of $500,000. Alpha Corp. does not have significant influence over Beta Co. The fair value of the investment at year-end is $450,000. Alpha Corp. elected the fair value option for this investment. Which of the following statements is true regarding the accounting for this investment at year-end?Financial Reporting
  22. 172.A not-for-profit (NFP) organization received a conditional pledge of $50,000 from a donor, contingent upon the NFP securing matching funds from other donors within six months. As of the end of the fiscal year, the NFP had secured $20,000 in matching funds. How should this conditional pledge be recognized in the NFP's financial statements?State and Local Governments
  23. 173.A city government is preparing its government-wide financial statements. It owns a municipal building with an original cost of $10,000,000, accumulated depreciation of $3,000,000, and outstanding general obligation bonds used to finance its acquisition totaling $4,000,000. How much should the city report as 'Net Investment in Capital Assets'?State and Local Governments
  24. 174.A not-for-profit (NFP) organization received a $200,000 cash contribution with a donor restriction that the funds be used to purchase a specific piece of medical equipment. The NFP purchased the equipment for $180,000 during the same fiscal year. How should this transaction affect the NFP's net assets?State and Local Governments
  25. 175.A county government maintains an Investment Trust Fund for the external portion of its investment pool, which includes resources of other legally separate governments. During the year, the fair value of the investments held by the fund increased by $500,000. How should this change in fair value be reported in the Investment Trust Fund's financial statements?State and Local Governments
  26. 176.A company issues 10-year, $1,000,000 bonds with a stated interest rate of 5%, payable semi-annually. The market interest rate on the date of issuance is 6%. Which of the following statements is true regarding the issuance of these bonds?Select Transactions
  27. 177.A company incurs a liability for environmental remediation. The remediation is required by law when a manufacturing plant is decommissioned, which is expected in 10 years. The company can reasonably estimate the fair value of the obligation. The company should recognize this liability as:Select Transactions
  28. 178.A not-for-profit animal shelter received a donation of medical supplies with a fair value of $15,000. These supplies are intended for immediate use in treating animals and were consumed entirely within the current fiscal year. The donor specified that the supplies must be used for animal care. How should this donation be reported in the Statement of Activities?Not-for-Profit Entities
  29. 179.A publicly traded company, Global Corp., prepares its financial statements in accordance with U.S. GAAP. During Year 1, Global Corp. purchased a machine for $1,000,000. It has an estimated useful life of 10 years and a salvage value of $100,000. Global Corp. uses the straight-line method of depreciation. In Year 2, Global Corp. revised the estimated useful life of the machine to 8 years remaining and its salvage value to $50,000. What amount should Global Corp. report as depreciation expense for the machine for the year ended December 31, Year 2?Financial Reporting
  30. 180.A publicly traded company, Global Corp., prepares its financial statements in accordance with U.S. GAAP. Which of the following is considered a component of Other Comprehensive Income (OCI)?Financial Reporting
  31. 181.A client is preparing its statement of cash flows using the indirect method. During the year, the company reported net income of $500,000. Depreciation expense was $80,000, and a gain on the sale of equipment was $20,000. Accounts receivable increased by $30,000, and accounts payable decreased by $15,000. What is the net cash flow from operating activities?Select Transactions
  32. 182.A publicly traded company, Delta Corp., is preparing its financial statements for the year ended December 31, Year 1. Delta Corp. has 1,000,000 shares of common stock outstanding throughout the year. On July 1, Year 1, Delta Corp. issued 100,000 shares of 5% cumulative preferred stock, $100 par value. The preferred stock is non-convertible. Net income for Year 1 was $2,500,000. What is Delta Corp.'s basic earnings per share (EPS) for Year 1?Financial Reporting
  33. 183.A not-for-profit university received a gift of marketable securities with a fair value of $500,000. The donor stipulated that the principal must be held in perpetuity, but the income generated from investing these securities can be used for scholarships. How should this contribution be classified in the Statement of Financial Position?Not-for-Profit Entities
  34. 184.A not-for-profit theater group received a cash contribution of $100,000 from a donor with the stipulation that the funds must be used to produce a new play celebrating local history. The donor also specified that the play must be performed within the next two years. How should this contribution be classified in the Statement of Financial Position upon receipt?Not-for-Profit Entities
  35. 185.A publicly traded company, Stellar Corp., is preparing its financial statements for the year ended December 31, Year 1. During Year 1, Stellar Corp. acquired a patent for $500,000. It is estimated that the patent has a useful life of 10 years and no residual value. Stellar Corp. uses the straight-line method for amortization. What amount should Stellar Corp. report as amortization expense for the patent for the year ended December 31, Year 1?Financial Reporting
  36. 186.A U.S. company, whose functional currency is the USD, acquires a machine from a German supplier on December 1, Year 1, for 100,000 Euros. Payment is due on March 1, Year 2. The exchange rates are as follows: December 1, Year 1: $1.10 = 1 Euro; December 31, Year 1: $1.15 = 1 Euro; March 1, Year 2: $1.12 = 1 Euro. What amount of foreign exchange gain or loss should the company recognize in its Year 1 income statement related to this transaction?Select Transactions
  37. 187.A county government issued $15,000,000 in general obligation bonds at par to finance the construction of a new courthouse. The bonds have a 20-year maturity. How should the bond proceeds be recorded in the governmental funds?State and Local Governments
  38. 188.A publicly traded company, Stellar Corp., incurred $1,000,000 in legal fees and other direct costs to successfully defend its patent against infringement during the current year. The patent has a remaining useful life of 10 years. How should Stellar Corp. account for these legal fees?Financial Reporting
  39. 189.A publicly traded company, Global Corp., has a defined benefit pension plan. At the end of the current year, the following information is available: - Projected Benefit Obligation (PBO): $2,000,000 - Fair Value of Plan Assets: $1,800,000 - Prior Service Cost (unrecognized, net of tax): $100,000 (debit balance) - Actuarial Gain (unrecognized, net of tax): $50,000 (credit balance) What is the funded status of Global Corp.'s pension plan that should be reported on its balance sheet?Financial Reporting
  40. 190.A company uses the LIFO inventory costing method. At year-end, the inventory records show the following: Product A has a cost of $50 per unit and a replacement cost of $45 per unit. The net realizable value (NRV) for Product A is $48 per unit, and the NRV less a normal profit margin is $43 per unit. What amount should Product A be reported at per unit, applying the lower-of-cost-or-market (LCM) rule under U.S. GAAP?Select Transactions
  41. 191.A company is preparing its financial statements for the year ended December 31, Year 1. On January 1, Year 1, the company purchased an investment in another entity's equity securities for $100,000. The investment does not give the company significant influence or control. At December 31, Year 1, the fair value of the investment is $90,000. There were no sales or purchases of this investment during the year. The company elected the fair value option for this investment. What amount of gain or loss should the company recognize in its Year 1 income statement related to this investment?Financial Reporting
  42. 192.A state government operates a lottery system, with a portion of the proceeds legally mandated to be transferred to the state's General Fund to support education programs. In the government-wide financial statements, how would this transfer be presented?State and Local Governments
  43. 193.A publicly traded company, Stellar Corp., prepares its financial statements in accordance with U.S. GAAP. Which of the following items would be reported as a component of 'Other Comprehensive Income' (OCI)?Financial Reporting
  44. 194.A not-for-profit research institution received a pledge of $500,000 from a major pharmaceutical company. The pledge is unconditional and is expected to be collected in two equal installments over the next two years. The fair value of the pledge, discounted to present value, is $475,000. How should this unconditional pledge be recognized in the Statement of Activities in the year it is made?Not-for-Profit Entities
  45. 195.A not-for-profit educational institution incurred various expenses during the fiscal year. These included salaries for professors, administrative staff salaries, utilities for classrooms and administrative offices, and depreciation on the academic building and the administrative building. When preparing the Statement of Functional Expenses, how should the depreciation expense specifically related to the academic building be classified?Not-for-Profit Entities
  46. 196.A not-for-profit health clinic received a significant anonymous cash donation of $200,000. The donor did not specify any restrictions on the use of these funds. The clinic's board of directors subsequently decided to use $150,000 of this donation to establish an endowment fund, with the income generated to be used for general operations. How should the $150,000 designated by the board be reported in the financial statements?Not-for-Profit Entities
  47. 197.A publicly traded company, Innovate Corp., is developing a new line of electronic gadgets. During the current year, it incurred the following costs related to the new product line: - Costs for market research to determine consumer demand: $75,000 - Costs for design and engineering of prototypes: $150,000 - Costs for testing and refining prototypes: $100,000 - Costs for legal fees to obtain a patent for a key component: $50,000 - Costs for advertising and promotion of the new product: $25,000 What total amount should Innovate Corp. capitalize as an asset for the current year?Financial Reporting
  48. 198.A publicly traded company, Zenith Corp., recorded sales of $1,000,000 on credit during the year. The terms of these sales were 2/10, net 30. Zenith Corp. uses the gross method to account for sales discounts. Historically, 70% of customers take advantage of the discount. What is the net realizable value of Zenith Corp.'s accounts receivable at year-end, assuming all sales occurred at year-end and no collections have been made?Financial Reporting
  49. 199.A publicly traded company, Stellar Corp., is preparing its financial statements for the year ended December 31, Year 1. Stellar Corp. has a note payable with a carrying amount of $500,000. The note is due on March 1, Year 3. However, Stellar Corp. has the intent and ability to refinance the note on a long-term basis. On February 15, Year 2, Stellar Corp. executed a refinancing agreement with a new bank for a 5-year loan, with the proceeds to be used to repay the existing note. The financial statements are authorized for issuance on March 10, Year 2. How should the $500,000 note payable be classified on Stellar Corp.'s December 31, Year 1 balance sheet?Financial Reporting
  50. 200.A publicly traded company, Stellar Corp., is preparing its financial statements for the year ended December 31, Year 1. On October 1, Year 1, Stellar Corp. acquired a patent for $500,000. The patent has a remaining legal life of 15 years and an estimated economic useful life of 10 years. What is the amortization expense for the patent for the year ended December 31, Year 1?Financial Reporting