Financial Accounting &
Reporting (FAR)
AICPA
Released Questions -
2022
Material from Uniform CPA Examination Selected Questions
and Unofficial Answers, 2022, copyright by American Institute
of Certified Public Accountants, Inc., is reprinted and/or
adapted with permission
Note: Any knowing solicitation or disclosure of any questions or
answers included on any CPA examination is prohibited
Multiple Choice Question #1:
It can be reasonably assumed that the FASB has made an amendment to generally accepted
accounting principles when the FASB issues
A. An exposure draft.
B. A staff accounting bulletin.
C. An accounting standards update.
D. A statement on standards for attestation engagements.
Correct Answer: C
1
Multiple Choice Question #2:
In a company's notes to its financial statements, the first note described significant changes in
accounting policies related to valuations of inventory and plant assets. Subsequent notes
included a separate note detailing inventories and a separate note detailing plant assets. For
which of these subsequent notes, if any, should the company duplicate a description of its
changes to significant accounting policies?
A. The plant assets note, but not the inventory note.
B. The inventory note, but not the plant assets note.
C. Both the plant assets note and the inventory note.
D. Neither the inventory note nor the plant assets note.
Correct Answer: D
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Multiple Choice Question #3:
Pardelle, Inc. acquired 80% of Soran Co.'s outstanding common stock on December 31, year 1.
Pardelle's retained earnings total $600,000 and Soran's retained earnings total $400,000 on the
acquisition date. What amount should be reported for consolidated retained earnings in the
consolidated statement of financial position on the acquisition date?
A. $600,000
B. $680,000
C. $920,000
D. $1,000,000
Correct Answer: A
3
Multiple Choice Question #4:
In year 1, a donor promised to give $100,000 to a nongovernmental, not-for-profit kitchen if it
provides 20,000 meals by March 31, year 2. At the end of year 1, the kitchen had provided
20,000 meals. In which line item, if any, should the contribution be reported in the kitchen's
statement of financial position at the end of year 1?
A. Cash.
B. Deferred revenue.
C. Contributions receivable.
D. The contribution should not be reported in the statement of financial position.
Correct Answer: C
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Multiple Choice Question #5:
Bramble, Inc. reported the following at the end of year 1: revenue, $100,000; assets, $300,000;
and operating profit, $50,000. One of Bramble's product lines reported the following at the end
of year 1: revenue, $10,000; assets, $35,000; and operating profit, $3,000. Which of the
following classifications should Bramble use to describe this product line for financial statement
presentation purposes?
A. Operating segment.
B. Reportable segment.
C. Subsidiary.
D. Asset group.
Correct Answer: B
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Multiple Choice Question #6:
A company entered into a loan with a lender for $100,000 and pledged $120,000 of the
company's accounts receivable as collateral. The lender does not have the right to sell or
repledge the accounts receivable. When the company receives the cash for the loan proceeds,
what entry, if any, should be made to accounts receivable?
A. Credit accounts receivable $20,000.
B. Credit accounts receivable $100,000.
C. Credit accounts receivable $120,000.
D. No entry is made to accounts receivable.
Correct Answer: D
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Multiple Choice Question #7:
On December 31 of the current year, Letterman Co.‘s cost of goods sold amounted to
$1,050,000. However, Letterman's auditors determined the beginning merchandise inventory
was understated by $20,000 and the ending merchandise inventory was overstated by $12,000.
What is the correct cost of goods sold for the current year?
A. $1,018,000
B. $1,042,000
C. $1,058,000
D. $1,082,000
Correct Answer: D
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Multiple Choice Question #8:
At the beginning of the current year, a company held trading debt securities with a fair value of
$250,000. During the year, the company received interest income of $25,000 from the
securities and purchased an additional $50,000 of trading debt securities. At the end of the
current year, the company recognized an unrealized loss of $20,000 on the trading debt
securities held as of the end of the year. What amount should the company report for the
trading debt securities in its statement of financial position at the end of the current year?
A. $280,000
B. $300,000
C. $305,000
D. $325,000
Correct Answer: A
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Multiple Choice Question #9:
A public business entity has a December 31 year-end reporting period and is aware that a
goodwill impairment test must be performed at least once during each reporting period. The
entity's controller has compiled a list of four potential dates in year 1 and year 2 to test for
goodwill impairment. Assuming that there are no events or circumstances requiring impairment
testing between the two scheduled dates, which of the following dates in year 1 and year 2,
when viewed together, would comply with appropriate guidance?
A. Year 1, June 20; year 2, December 20.
B. Year 1, December 31; year 2, June 30.
C. Year 1, December 31; year 2, March 31.
D. Year 1, April 15; year 2, April 15.
Correct Answer: D
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Multiple Choice Question #10:
A company issued a financial instrument that unconditionally requires the company to settle
the obligation by issuing common stock with a value of $500,000 on the settlement date. How
should the company report this instrument in its financial statements?
A. As a liability in the balance sheet.
B. As an equity instrument in the balance sheet.
C. By only disclosing a liability in the notes.
D. By only disclosing an equity instrument in the notes.
Correct Answer: A
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Multiple Choice Question #11:
Which of the following items is considered a permanent book to tax difference?
A. Warranty payable.
B. Prepaid insurance.
C. Tax penalties paid to tax authorities.
D. Accounting for sales of property under the installment method.
Correct Answer: C
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Multiple Choice Question #12:
A defendant has three outstanding lawsuits at the end of year 1. The estimated loss for the
first, second, and third cases are $5,000,000, $2,000,000, and $1,000,000, respectively. The
likelihood that the plaintiff will lose the first case is highly probable. The chance of losing the
second case is reasonably possible, but not probable. The chance of losing the third case is
remote. What amount should the defendant accrue as a contingent liability at the end of year
1?
A. $8,000,000
B. $7,000,000
C. $5,000,000
D. $2,000,000
Correct Answer: C
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Multiple Choice Question #13:
A company that is translating account balances from another currency into U.S. dollars for year-
end financial statements should use the current exchange rate as of the date of the balance
sheet for which of the following accounts?
A. Revenue.
B. Accounts receivable.
C. Capital stock.
D. Retained earnings.
Correct Answer: B
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Multiple Choice Question #14:
Which of the following types of agreement represents a split-interest arrangement?
A. A perpetual trust naming ABC as sole beneficiary.
B. A charitable remainder trust.
C. A direct bequest to ABC in the donor's will.
D. A direct gift to ABC to be made by the donor next year.
Correct Answer: B
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Multiple Choice Question #15:
In year 1, a corporation incurred $3,500,000 of costs related to the development of a new
software product. Of these costs, $1,000,000 was incurred after technological feasibility was
established. The product development was completed and the product was available for sale to
customers early in year 2. The corporation estimated that revenues from the sale of the new
product would be $1,200,000 over five years. What amount of expense should the company
report for year 1?
A. $500,000
B. $700,000
C. $2,500,000
D. $3,500,000
Correct Answer: C
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Multiple Choice Question #16:
Old Town added a water and sewer department to its municipal services. The department
provided the services to the residents of Old Town and issued quarterly billings to customers. In
which of the following types of funds would this activity be recorded?
A. Special revenue.
B. Capital projects.
C. Permanent.
D. Enterprise.
Correct Answer: D
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Multiple Choice Question #17:
A local government should report expenses, excluding special or extraordinary items, by which
of the following in its government-wide statement of activities?
A. Function.
B. Major source.
C. Major then minor funds.
D. Descending order by amount.
Correct Answer: A
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Multiple Choice Question #18:
Which of the following is a qualitative characteristic that enhances the usefulness of financial
information?
A. Neutrality.
B. Materiality.
C. Verifiability.
D. Confirmatory value.
Correct Answer: C
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Multiple Choice Question #19:
A company reported the following for the current year:
Retained earnings appropriated for plant expansion $32,500
Correction of understated depreciation expense from prior periods 9,300
Unrealized loss on available-for-sale debt securities 8,100
Unrealized gain on foreign currency translation 3,400
The company's current-year net income was $86,500, and the company has a 30% effective
income tax rate. What amount of comprehensive income should be reported for the current
year?
A. $40,000
B. $76,700
C. $81,800
D. $83,210
Correct Answer: D
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Multiple Choice Question #20:
A U.S. company owns 80% of a non-U.S. company located in a foreign country with a very
unstable political and economic climate. In which of the following situations should the U.S.
company not consolidate its financial statements with the non-U.S. company?
A. The foreign country has currency exchange rate fluctuations on a daily basis.
B. The government of the foreign country has increased the tax rate for all companies that
are majority-owned by U.S. companies.
C. The government of the foreign country has required all companies operating within its
borders to implement International Financial Reporting Standards.
D. The government of the foreign country has recently imposed a number of severe
sanctions and controls on all companies that are majority-owned by U.S. companies.
Correct Answer: D
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Multiple Choice Question #21:
In the current year a nongovernmental, not-for-profit entity incurred $630,000 in expenditures
during the year. It also received donated legal services, which otherwise would have cost
$40,000, and consumed donated supplies with a value of $15,000. What should the entity
report as total expenses in its statement of activities for the current year?
A. $630,000
B. $645,000
C. $685,000
D. $670,000
Correct Answer: C
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Multiple Choice Question #22:
A company provides a defined-contribution pension plan for its employees. For the plan
administrator to report contributions from the company, contributions from participants,
benefits paid to participants, and changes in fair value of investments, which of the following
financial statements is required?
A. Statement of net assets available for benefits.
B. Statement of cash flows.
C. Statement of changes in net assets available for benefits.
D. Statement of changes in financial position.
Correct Answer: C
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Multiple Choice Question #23:
On the first day of the year, a donor established a $100,000 irrevocable perpetual trust with a
third-party trustee naming a not-for-profit entity as the sole income beneficiary in perpetuity.
During the year, the trust earned and distributed $4,000 in income to the entity for unrestricted
use. On the last day of the year, the fair value of the trust had increased by $5,000. What
amount should the entity report in its year-end statement of financial position as beneficial
interest in perpetual trust?
A. $96,000
B. $100,000
C. $101,000
D. $105,000
Correct Answer: D
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Multiple Choice Question #24:
In which of the following circumstances would trademarks acquired by an entity most likely be
deemed to have an indefinite useful life?
A. The entity pays substantial amounts of money to renew the trademarks.
B. The entity operates in an industry with a rapidly changing regulatory environment
governing trademarks.
C. The entity plans to use the trademark until the planned phase-out date of the
underlying asset.
D. The entity's trademark has a remaining legal life of five years but is renewable at very
little cost.
Correct Answer: D
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Multiple Choice Question #25:
A nongovernmental, not-for-profit entity calculated a $4,000 increase in net assets with donor
restrictions for the current fiscal year before consideration of the following:
A cash donation designated by the donor as an endowment in perpetuity $28,000
Net assets released from restrictions 12,000
A donation received that was designated as a quasi-endowment 21,000
Which of the following should be reported as the increase in net assets with donor restrictions
in the current-year statement of activities?
A. $16,000
B. $20,000
C. $37,000
D. $41,000
Correct Answer: B
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Multiple Choice Question #26:
A company signed a five-year contract with a customer in year 1 and agreed to modify the
contract at the beginning of year 2. Which of the following is a condition that must be present
in order for the contract modification to be accounted for as a separate contract?
A. The original contract is terminated.
B. The price of the original contract remains the same.
C. The performance obligations of the original contract are partially satisfied.
D. The scope of the original contract increases through the addition of distinct goods or
services.
Correct Answer: D
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Multiple Choice Question #27:
Which of the following statements is correct regarding the Black-Scholes-Merton option-pricing
model used to estimate the fair value of stock options granted to employees as part of a
company's compensatory stock option plan?
A. The model's formula assumes that option exercises occur at the beginning of an option's
contractual term.
B. The model's formula assumes that expected dividends vary over the option's term.
C. The model's formula assumes that risk-free interest rates are constant over the option's
term.
D. The model is referred to as a lattice model.
Correct Answer: C
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Multiple Choice Question #28:
A company reported $130,000 in income from continuing operations for its first year of
operations. The tax-basis depreciation deduction for the year exceeded GAAP depreciation
expense by $12,500, and the warranty accrual exceeded the amount spent for warranty repairs
by $8,300. The company properly calculated a $840 increase in its deferred tax liability for the
year. If the enacted tax rate for the current year is 20%, what amount of income taxes payable
should be reported in the year-end balance sheet?
A. $24,340
B. $25,160
C. $26,000
D. $26,840
Correct Answer: B
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Multiple Choice Question #29:
With regard to a fair value hedge, hedge effectiveness is a measure of the extent to which the
A. Cash flows from the hedge transaction offset cash flows from the hedged risk.
B. Hedge transaction results in eliminating changes in fair value of the hedged item.
C. Hedge transaction offsets the exposure to changes in the hedged item's fair value.
D. Actual change in the hedge's fair value corresponds to the expected change in the
hedge's fair value.
Correct Answer: C
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Multiple Choice Question #30:
The lessee should recognize amounts probable of being owed under a residual value guarantee
as a component of lease payments
A. At the conclusion of the lease.
B. At no time during the lease term.
C. On a straight-line basis during the lease.
D. On the commencement date of the lease.
Correct Answer: D
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Multiple Choice Question #31:
In year 4, a nongovernmental, not-for-profit school began a campaign to raise funds for a
proposed capital addition. The following information is available as of June 30, year 4:
Information Amount
Received on February 1, year 4: cash contributions from parents
and alumni $450,000
Received on February 1, year 4: unconditional promises to
give, of which $300,000 was received as of June 30, year 4 600,000
Received on March 1, year 4: a promise from a year 1 alumnus
to give $50,000 if other year 1 alumni give a total of $50,000
before September 30, year 5 50,000
Received on June 30, year 4: cash contributions from year 1 alumni
in response to March 1, year 4, alumni challenge 20,000
What amount of cash contributions for this campaign should the school report in its June 30,
year 4, statement of activities?
A. $770,000
B. $1,050,000
C. $1,070,000
D. $1,090,000
Correct Answer: C
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Multiple Choice Question #32:
When the recoverability of a building's carrying amount is determined to be impaired, the
building's fair value is best measured as the
A. Price the building can be sold for in an advantageous market.
B. The selling price less transaction costs to complete the sale for this type of building in its
principal market.
C. Price that would be received for this type of building based on observable inputs in its
principal market.
D. Price determined using internal cost estimates to construct a similar building.
Correct Answer: C
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Multiple Choice Question #33:
A local government recorded revenues as follows: personal income tax, $200,000; sales taxes,
$100,000; and property taxes, $150,000. What should the local government report as total
derived tax revenue?
A. $100,000
B. $150,000
C. $300,000
D. $450,000
Correct Answer: C
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Multiple Choice Question #34:
Which of the following is not required in the budgetary comparison schedule presented by a
state or local government as part of required supplementary information?
A. The original budget.
B. The final appropriated budget.
C. Variances between the final budget and actual amounts.
D. Actual inflows, outflows, and balances stated on a budgetary basis.
Correct Answer: C
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Item: 500178
Scroll down to complete all parts of this task.
A company has the following information relating to transactions in year 1, its first year of
operations. The company applies the straight-line method to amortize its intangible assets. The
company elected the private company alternative for the subsequent measurement of goodwill and
concluded that the maximum amortization period permitted under the alternative was appropriate.
For each transaction, enter the asset carrying amount at December 31, year 1. If an amount is zero,
enter a zero (0). Round all amounts to the nearest dollar.
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Simulation #1:
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Exhibits Information
There are no exhibits for this item.
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Blueprint Information
CSO: 002.006.000
Skill: Application
Representative task: Calculate the carrying amount of finite-lived intangible assets reported in the
financial statements (initial measurement, amortization and impairment) and prepare journal entries.
37
Item: 500713
A nongovernmental, not-for-profit federated fundraising entity spent $50,000 on an annual
fundraising campaign for the benefit of a local charity. Which section of the authoritative literature
best supports the entity's decision to report the $50,000 as fundraising expenses?
Enter your response in the answer fields below. Unless specifically requested, your response should
not cite implementation guidance. Guidance on correctly structuring your response appears above
and below the answer fields.
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Simulation #2:
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Exhibits Information
There are no exhibits for this item.
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Blueprint Information
CSO: 001.003.002
Skill: Application
Representative task: ASC 958-720-45
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Item: 508395
Scroll down to complete all parts of this task.
Apex Corp. is in the process of determining the appropriate accounting treatment for a number of
year 7 transactions and events related to property, plant and equipment.
Review the draft memorandum below, along with the exhibits above, and make the necessary
corrections, if any, to the proposed accounting treatments and to the supporting authoritative
references in the FASB Accounting Standards Codification (ASC).
To revise the memorandum, click on each segment of underlined text below and select the needed
correction, if any, from the list provided. If the underlined text is already correct in the context of the
memorandum, select [Original text] from the list. Paragraphs may contain more than one segment of
underlined text to be considered for correction.
Simulation #3:
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END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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Response 1
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Key
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Response 2
Key
45
Response 3
46
Key
47
Response 4
48
Key
49
Response 5
50
Key
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Exhibits Information
Exhibits included in this item
1. Cash Flow Analysis of Manufacturing Facility
2. Attorney Letter
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Exhibit for Item: 508395
Exhibit 1: Cash Flow Analysis of Manufacturing Facility
USD (in 000’s)
Year
8
Year
9
Year
10
Year
11
Year
12
Year
13
Year
14
Year
15
Total
Undiscounted
net cash flow
(650)
2
75
113
171
142
167
1,211
1,231
Present value
of net cash
flow at 8%
(602)
2
60
83
116
90
97
654
500
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Exhibit for Item: 508395
Exhibit 2: Attorney Letter
Gordon & Gordon, Attorneys-at-Law
4500 Main Street
Springwell, GA 30089
265-555-1111
December 31, year 7
Dear Controller:
Apex Corp. closed on the purchase of new land on September 30, year 7. Below is a summary of the
costs that Apex has incurred related to this transaction:
•
Purchase price for land
$500,000
•
Closing costs
6,000
•
Transfer tax
5,000
•
Property tax for fourth quarter of year 7
1,100
•
Delinquent property taxes that the prior owner left unpaid
2,200
•
Cost to remove an old building on the land
8,000
•
Proceeds from the sale of materials salvaged from the old building
1,500
It has been our pleasure to assist you in this land purchase.
Very truly yours,
J.P. Gordon
Gordon & Gordon, Attorneys-at-Law
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Blueprint Information
CSO: 002.004.000
Skill: Analysis
Representative task: Reconcile and investigative differences between the subledger and general
ledger for property, plant and equipment to determine whether an adjustment is necessary
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