Free AICPA FAR Practice Test & Real Exam Questions

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
1 990?

An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co.
appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. What
amount of inventory loss should be reported in Cox's quarterly income statement for the three months
ended June 30, 1989?

Which of the following should be disclosed in a summary of significant accounting policies?
I. Management's intention to maintain or vary the dividend payout ratio.
II. Criteria for determining which investments are treated as cash equivalents.
III. Composition of the sales order backlog by segment.

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?

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 sells extended service contracts on its products. Because related services are performed over
several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income
from these service contracts.
List A (Select one)

What information should a public company present about revenues from its reporting segments?

Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31, 1988 as
follows: Coffey's income tax rate is 30%. The gain on debt extinguishment is considered a usual and
recurring part of Coffey's operations. Coffey prepares a multiple-step income statement for 1988.

Income from operations before income tax is:

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
1 992 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
1 992 financial statements.
Item to Be Answered
Quo sells extended service contracts on its products. Because related services are performed over
several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income
from these service contracts.
List B (Select one)

On January 2, 1991, Air, Inc. agreed to pay its former president $300,000 under a deferred compensation
arrangement. Air should have recorded this expense in 1990 but did not do so. Air's reported income tax
expense would have been $70,000 lower in 1990 had it properly accrued this deferred compensation in its
December 31,1991, financial statements, Air should adjust the beginning balance of its retained earnings
by a:

According to the FASB conceptual framework, the process of reporting an item in the financial statements
of an entity is:

Which of the following is true regarding the presentation of "comprehensive income."

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?

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 manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is
preferable, accounting for these long-term contracts was switched from the completed-contract method to
the percentage-of-completion method.
List A (Select one)

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