FINANCIAL ACCOUNTING AND REPORTING
ACTUAL CPA EXAM WITH SOLUTIONS
How is a change in entity recorded? - Answer-
Applied retrospectively. All prior periods
presented for comparative purposes must
reflect the change Footnote disclosures must
be made Changing to Consolidated Statements
What is a serial bond? - answer-Any bond that
matures in installments
How are changes in accounting principle
applied? - answer-Retrospective
Application:Prior Periods adjustedRetained
Earnings adjustedCompleted Contract to %
CompletionEx: LIFO to FIFO
Would a change from Completed Contract to
Percentage of Completion be a change in
,accounting principle- or a change of
estimate?How would it be applied? - answer-A
change of principle.Applied retrospectively.
Would a change from LIFO to FIFO be a change
in accounting principle or a change of
estimate? How would this change be applied? -
answer-A change in accounting
principle.Applied retrospectively.
How is a change in accounting estimate
applied? - answer-A change in accounting
estimate is applied prospectively (going
forward).No backwards adjustment is made.
Would a change from straight line depreciation
to double declining balance be a change in
accounting principle or a change in
estimate?How would this change be applied? -
answer-Change in depreciation method would
,be a change in accounting estimate. It is
applied prospectively.
How is a correction of an accounting error
made? - answer-Cumulative effect of error
gets adjusted to the beginning balances of
assets and liabilities in the earliest period
presented in the comparative statements.The
correction of the error must be included in the
footnotes.
What are the requirements for a prior period
adjustment? - answer-Effect is MaterialIs
identifiable in Prior PeriodCouldn't be
estimated in Prior Periods
How is a change from a non-GAAP accounting
method to a GAAP method recorded? -
answer-It is treated as a correction of an
accounting error.Cumulative effect of error
gets adjusted to the beginning balances of
, assets and liabilities in the earliest period
presented in the comparative
statementsCorrection of the error must be
included in the footnotes
How does an inventory error effect the
financial statements? - answer-Effect on
Ending Inventory : Effect on Net IncomeIf one is
overstated- both overstated. If one is
understated- both understated.Misstating
inventory corrects itself after TWO periods.
What is a term bond? - answer-Any bond that
matures on a single date
What is a debenture bond? - answer-A bond
not secured by any collateral
What is a sinking fund bond? - answer-Cash is
held in a sinking fund for repayment of bond at
ACTUAL CPA EXAM WITH SOLUTIONS
How is a change in entity recorded? - Answer-
Applied retrospectively. All prior periods
presented for comparative purposes must
reflect the change Footnote disclosures must
be made Changing to Consolidated Statements
What is a serial bond? - answer-Any bond that
matures in installments
How are changes in accounting principle
applied? - answer-Retrospective
Application:Prior Periods adjustedRetained
Earnings adjustedCompleted Contract to %
CompletionEx: LIFO to FIFO
Would a change from Completed Contract to
Percentage of Completion be a change in
,accounting principle- or a change of
estimate?How would it be applied? - answer-A
change of principle.Applied retrospectively.
Would a change from LIFO to FIFO be a change
in accounting principle or a change of
estimate? How would this change be applied? -
answer-A change in accounting
principle.Applied retrospectively.
How is a change in accounting estimate
applied? - answer-A change in accounting
estimate is applied prospectively (going
forward).No backwards adjustment is made.
Would a change from straight line depreciation
to double declining balance be a change in
accounting principle or a change in
estimate?How would this change be applied? -
answer-Change in depreciation method would
,be a change in accounting estimate. It is
applied prospectively.
How is a correction of an accounting error
made? - answer-Cumulative effect of error
gets adjusted to the beginning balances of
assets and liabilities in the earliest period
presented in the comparative statements.The
correction of the error must be included in the
footnotes.
What are the requirements for a prior period
adjustment? - answer-Effect is MaterialIs
identifiable in Prior PeriodCouldn't be
estimated in Prior Periods
How is a change from a non-GAAP accounting
method to a GAAP method recorded? -
answer-It is treated as a correction of an
accounting error.Cumulative effect of error
gets adjusted to the beginning balances of
, assets and liabilities in the earliest period
presented in the comparative
statementsCorrection of the error must be
included in the footnotes
How does an inventory error effect the
financial statements? - answer-Effect on
Ending Inventory : Effect on Net IncomeIf one is
overstated- both overstated. If one is
understated- both understated.Misstating
inventory corrects itself after TWO periods.
What is a term bond? - answer-Any bond that
matures on a single date
What is a debenture bond? - answer-A bond
not secured by any collateral
What is a sinking fund bond? - answer-Cash is
held in a sinking fund for repayment of bond at
