FAR 2025 AICPA
Released Questions
latest updated version
with verified solutions
1. Materiality and relevance are both defined by
a. What influences or makes a difference to a decision
marker.
b. Quantitative criteria set by the Financial
Accounting Standards Board.
c. The consistency in the application of methods
over time.
d. The perceived benefits to be denied that exceed the
perceived costs associated with it. - answer 1. (a) What influences
or makes a difference to a decision
marker.
The requirement is to determine what defines materiality and
relevance. Answer (a) is correct. Relevant information is capable of
making a difference in a user's decision. Materiality is entity specific
and related to relevance—if omitting it or misstating it could
influence a user's decision. Therefore, materiality and relevance are
defined by what influences or makes a difference to a
decision maker.
,2. According to the FASB conceptual framework, for
financial reporting to be useful, it must
a. Be in accordance with generally accepted
accounting principles.
b. Provide information useful for making business
and investment decisions.
c. Be understandable to those who have a limited
knowledge of business activities.
d. Directly measure the value of the entity being
reported on - answer b. Provide information useful for making
business
and investment decisions.
The requirement is to determine what makes financial
reporting useful. Answer (b) is correct. Financial reporting is useful
if it is provides information to potential and existing investors,
lenders, and other creditors in making business and investment
decisions.
3. For a company to obtain a retail business license in
a particular state, the company is required to pay the
state the equivalent of three months of sales taxes on its
projected retail sales. This amount is fully refundable after
five years, provided the company has filed all required
sales tax returns and paid all sales taxes due. Initially
the company should report the payment related to this
licensing requirement as
,a. An expense.
b. A current asset.
c. A noncurrent liability.
d. A noncurrent asset. - answer d. A noncurrent asset.
The requirement is to classify a prepayment of sales tax
that is refundable after five years. Answer (d) is correct. To be
classified as current, an item must be expected to be realized in
cash or sold or consumed during the normal operating cycle of a
business or one year, whichever is longer. The refundable sales tax
will not be returned until after year 5. Therefore, it is not a current
asset. However it would be classified as non-current asset. Answer
(a) is incorrect because the sales tax payment is refundable so it is
not an expense. Answer (b) is incorrect because the monies will not
be returned for 5 years. Therefore, it does not meet the definition of
a current asset. Answer (c) is incorrect because the monies are
returnable to the company. Therefore, an asset, not a liability
4. Which of the following assets or transactions is an
element of comprehensive income?
a. Investments by owners.
b. Sales revenue.
c. Distributions to owners.
d. Deferred revenue - answer b. Sales revenue.
The requirement is to determine which item is a component of
comprehensive income. Answer (b) is correct. Comprehensive
income is the sum of net earnings/loss and other comprehensive
income. Therefore, the only item that meets that definition is sales
revenue. Answers (a), (c), and (d) impact the balance sheet, not
comprehensive income.
, 5. Gold Co. purchased equipment from Marshall Co.
on July 1. Gold paid Marshall $10,000 cash and signed a
$100,000 noninterest-bearing note payable, due in three
years. Gold recorded a $24,868 discount on notes payable
related to this transaction. What is the acquired cost of the
equipment on July 1?
a. $75,132
b. $85,132
c. $100,000
d. $110,000 - answer b. $85,132
The requirement is to determine the acquisition cost of
equipment. Answer (b) is correct. Facts state that $10,000 cash was
paid and a long-term non-interest bearing note ($100,000 with a
$24,868 discount) was given. If a note (receivable or payable) has a
life longer than one year, it should be recorded at its present value.
Therefore, the acquisition cost of the equipment would be equal to
$85,132 = $10,000 + $75,132 ($100,000 - $24,868).
A company acquired an aircraft for $120 million, with
the cost consisting of the airframe, $60 million; the engine, $40
million; and other components, $20 million. The company applies
the cost model and uses the straight-line method of depreciation.
The aircraft has a total estimated useful life of 20 years and no
residual value. The estimated useful lives of the components are as
follows:
Airframe 20 years
Engine 16 years
Released Questions
latest updated version
with verified solutions
1. Materiality and relevance are both defined by
a. What influences or makes a difference to a decision
marker.
b. Quantitative criteria set by the Financial
Accounting Standards Board.
c. The consistency in the application of methods
over time.
d. The perceived benefits to be denied that exceed the
perceived costs associated with it. - answer 1. (a) What influences
or makes a difference to a decision
marker.
The requirement is to determine what defines materiality and
relevance. Answer (a) is correct. Relevant information is capable of
making a difference in a user's decision. Materiality is entity specific
and related to relevance—if omitting it or misstating it could
influence a user's decision. Therefore, materiality and relevance are
defined by what influences or makes a difference to a
decision maker.
,2. According to the FASB conceptual framework, for
financial reporting to be useful, it must
a. Be in accordance with generally accepted
accounting principles.
b. Provide information useful for making business
and investment decisions.
c. Be understandable to those who have a limited
knowledge of business activities.
d. Directly measure the value of the entity being
reported on - answer b. Provide information useful for making
business
and investment decisions.
The requirement is to determine what makes financial
reporting useful. Answer (b) is correct. Financial reporting is useful
if it is provides information to potential and existing investors,
lenders, and other creditors in making business and investment
decisions.
3. For a company to obtain a retail business license in
a particular state, the company is required to pay the
state the equivalent of three months of sales taxes on its
projected retail sales. This amount is fully refundable after
five years, provided the company has filed all required
sales tax returns and paid all sales taxes due. Initially
the company should report the payment related to this
licensing requirement as
,a. An expense.
b. A current asset.
c. A noncurrent liability.
d. A noncurrent asset. - answer d. A noncurrent asset.
The requirement is to classify a prepayment of sales tax
that is refundable after five years. Answer (d) is correct. To be
classified as current, an item must be expected to be realized in
cash or sold or consumed during the normal operating cycle of a
business or one year, whichever is longer. The refundable sales tax
will not be returned until after year 5. Therefore, it is not a current
asset. However it would be classified as non-current asset. Answer
(a) is incorrect because the sales tax payment is refundable so it is
not an expense. Answer (b) is incorrect because the monies will not
be returned for 5 years. Therefore, it does not meet the definition of
a current asset. Answer (c) is incorrect because the monies are
returnable to the company. Therefore, an asset, not a liability
4. Which of the following assets or transactions is an
element of comprehensive income?
a. Investments by owners.
b. Sales revenue.
c. Distributions to owners.
d. Deferred revenue - answer b. Sales revenue.
The requirement is to determine which item is a component of
comprehensive income. Answer (b) is correct. Comprehensive
income is the sum of net earnings/loss and other comprehensive
income. Therefore, the only item that meets that definition is sales
revenue. Answers (a), (c), and (d) impact the balance sheet, not
comprehensive income.
, 5. Gold Co. purchased equipment from Marshall Co.
on July 1. Gold paid Marshall $10,000 cash and signed a
$100,000 noninterest-bearing note payable, due in three
years. Gold recorded a $24,868 discount on notes payable
related to this transaction. What is the acquired cost of the
equipment on July 1?
a. $75,132
b. $85,132
c. $100,000
d. $110,000 - answer b. $85,132
The requirement is to determine the acquisition cost of
equipment. Answer (b) is correct. Facts state that $10,000 cash was
paid and a long-term non-interest bearing note ($100,000 with a
$24,868 discount) was given. If a note (receivable or payable) has a
life longer than one year, it should be recorded at its present value.
Therefore, the acquisition cost of the equipment would be equal to
$85,132 = $10,000 + $75,132 ($100,000 - $24,868).
A company acquired an aircraft for $120 million, with
the cost consisting of the airframe, $60 million; the engine, $40
million; and other components, $20 million. The company applies
the cost model and uses the straight-line method of depreciation.
The aircraft has a total estimated useful life of 20 years and no
residual value. The estimated useful lives of the components are as
follows:
Airframe 20 years
Engine 16 years
