Admission Test Certified Public Accountant (Financial Accounting & Reporting) - Financial-Accounting-Reporting Exam Questions

QUESTION NO: 1
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
Quo changed from FIFO to average cost to account for its raw materials and work in process inventories.
List A (Select one)

QUESTION NO: 2
Which of the following statements best describes an operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement?

QUESTION NO: 3
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:

QUESTION NO: 4
Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis financial statements:

QUESTION NO: 5
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of Envoy's operations. Envoy plans to sell the small appliance group with its operations. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation?

QUESTION NO: 6
During 1994, Orca Corp. decided to change from the FIFO method of inventory valuation to the weightedaverage method. Inventory balances under each method were as follows:

Orca's income tax rate is 30%.
Orca should report the cumulative effect of this accounting change as a(n):

QUESTION NO: 7
Taft Corp. discloses supplemental industry segment information. The following information is available for 1992:

Additional 1992 expenses, not included above, are as follows:
Indirect operating expenses $7,200
General corporate expenses 4,800
Segment C's 1992 operating profit was:

QUESTION NO: 8
In 1992, hail damaged several of Toncan Co.'s vans. Hailstorms had frequently inflicted similar damage to Toncan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying for repairs, or selling damaged vans and then replacing them. In 1992, the damaged vans were sold for less than their carrying amount. How should the hail damage cost be reported in Toncan's 1992 financial statements?

QUESTION NO: 9
According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?

QUESTION NO: 10
During 1990, Fuqua Steel Co. had the following unusual financial events occur:
* Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain. Fuqua has frequently retired bonds early when interest rates declined significantly.
* A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth similar loss sustained in a 5-year period at that location.
* A component of Fuqua's operations, steel transportation, was sold at a net loss of $350,000.
This was Fuqua's first divestiture of one of its operating segments.
Before income taxes, what amount should be disclosed as the gain (loss) from extraordinary items in 1990?

QUESTION NO: 11
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?

QUESTION NO: 12
A change from the cost approach to the market approach of measuring fair value is considered to be what type of accounting change?

QUESTION NO: 13
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment required for these transactions. These treatments are:
* Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
* Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
* Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
Item to Be Answered
Quo changed from LIFO to FIFO to account for its finished goods inventory.
List B (Select one)

QUESTION NO: 14
How should the effect of a change in accounting estimate be accounted for?